In the world of consumer personal finance, the F-word, fee, has grown increasingly unpalatable. Citibank will soon begin charging $20 a month for checking. At Bank of America, it’s $5 per month to use a debit card. Wells Fargo and Chase are also charging such a fee, at $3, in selected areas. Public response to the developments has been predictably negative; some big bank customers are even fleeing for greener credit union pastures.
“Of course we understand that people are upset,” said Nessa Feddis, VP and Senior Counsel for regulatory compliance of the American Bankers Association, addressing the topic during a recent appearance on “The Credit Line,” hosted by Credit.com Chairman Adam Levin. “Most people pay nothing for bank services,” she said during the radio discussion. “And while we all like things to be free, checking accounts are taken for granted.”
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In that sense, fees need to be considered in the appropriate context, Feddis said. “What tends to get overlooked is there is great value and convenience in checking accounts and there are costs involved in providing it, costs that aren’t covered by the return the banks make on a balance, particularly on balances that are low balances—even a thousand dollars or two thousand,” she explained.
And then there’s the back-story. Bankers trace the fees’ genesis to a Congressional decision, the Durbin amendment, passed as part of the larger Dodd-Frank financial reform act and named for Sen. Dick Durbin (D – Ill.), who championed the proposal. The rule allows the Federal Reserve to limit the amount of money banks can charge merchants in debit card interchange fees, commonly known as “swipe” fees. Originally averaging about 44 cents, the Fed brought the fees down to around 22 cents per swipe. Since these fees helped subsidize free checking services, banks had to turn to another revenue stream to cover associated capital costs. Feddis said.
Enter the new debit card and checking account fees.
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“When the government comes in and cuts out a source of revenue that helps pay for a product the bank, like any business, has to find another source to make up that lost income and that’s what we’re seeing,” she said.
Asked by Levin whether banks actually save money by processing transactions electronically rather than deal with the logistical complications of handling hard currency, Feddis countered that it is merchants that actually enjoy this advantage. “(They) save all the cost of protecting and counting and securing money,” she said. “If some of the big box stores took on the cash they’d probably have to hire a small army to protect it.”
While the Durbin amendment will likely be debated among politicians and industry leaders for some time, banks’ response to it is having a clear-cut and immediate impact. As Levin put it: “There’s no question that what’s happened is that the people in the least position to pay, with the least alternatives, are the ones that are probably going to get the most whacked by these fees.”
[Related article: Debit Card Swipe Fee, We Hardly Knew Thee]
The Credit Line
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