Bank of America to charge monthly fee for debit card use
(Reuters) – Bank of America Corp plans to start charging customers who use their debit cards to make purchases a $5 monthly fee beginning early next year, joining a host of other banks scrambling for new sources of revenue.
U.S. banks have been looking for ways to increase revenue as regulations introduced since the 2008 financial crisis have limited the use of overdraft and other fees.
The Dodd-Frank Act’s Durbin amendment, which takes effect October 1, caps fees banks can charge merchants for processing debit cards to 21 cents per transaction, potentially costing banks billions of dollars in fee income.
Banks also face broader operational challenges, as a low interest rate environment and higher capital requirements hit profitability, and as a slow economy depresses demand for loans.
Other large U.S. banks including Wells Fargo & Co, JPMorgan Chase & Co and SunTrust Banks Inc are already testing or plan to fully roll out monthly debit card fees.
“The economics of offering a debit card have changed,” said Bank of America spokeswoman Anne Pace on Thursday. Bank of America is the largest U.S. bank by assets.
Pace said customers expect certain features for their accounts, like overdraft and fraud protection, and the fee will offset some of those costs.
The fee will be waived for the bank’s premium or platinum privileges accounts tied to its Merrill Lynch brokerage. It will also not be charged for using the card to access the bank’s ATMs, Pace said.
She declined to say how much the bank expects to earn through these fees or how many customers will be affected.
Bank of America’s fee income has been dropping at its deposits and card services units over the last year, even before the introduction of the Durbin amendment’s rules on debit fees.
The bank’s deposits unit reported fee income of $1 billion in second quarter 2011, down 34 percent from $1.5 billion a year before.
Card services — which includes the bank’s credit and debit card operations — reported fee income of $1.9 billion, down 23 percent from $2.5 billion in second quarter 2010.
Some banks have pushed back against debit fees.
Citigroup Inc said earlier this month it would not impose debit card usage fees as part of a broader account restructuring.
The head of banking products for Citi’s U.S. consumer bank said customers told the bank a debit card fee would be “a huge source of irritation.”
(Reporting by Joe Rauch in Charlotte, North Carolina, editing by Gerald E. McCormick)
Source: Reuters US Online Report Domestic News