Banks To Raise Debit Card Fees
LYNN NEARY, host: Several big banks, including Bank of America, Sun Trust and Wells Fargo are introducing new fees for debit card users. The banks say they need to do this because they are losing income from other fees that are now limited by new government regulations.
Ron Lieber's been writing about this for The New York Times. He's a personal finance columnist for the paper, and we invited him to our studio in New York to talk more about these fees. Thanks for being with us, Ron.
RON LIEBER: Thanks for having me on.
NEARY: So, first of all, are these new fees on debit card use, are they destined to become an industry standard?
LIEBER: It's not clear yet that they're destined to become an industry standard. The problem here is that the big banks are earning less from merchants than they used to for the privilege of processing these debit card fees. And so they feel the need to make up the money that they've lost. Now, need is an interesting word in this context, because need is - it's the shareholders, right, who want the bank to keep earning the same amount of money. Theoretically, they could earn less and not pass on the cost to consumers, but they are choosing to pass the cost off.
NEARY: Well, a lot of bank customers were not too happy to hear about these fees. Do they have any options if they want to avoid having to pay these kinds of fees?
LIEBER: At this point, there are still plenty of options for people who want to stick with banks like Bank of America or Wells. They could simply switch over to using a credit card instead of a debit card. The problem is some people are no longer eligible to get a credit card. Then there's people who really like the budgeting capability that a debit card gives them and they want to keep using it, and they don't want to pay for the privilege. And there are still plenty of community banks, plenty of online-only banks and plenty of credit unions that do not have minimum balances for checking accounts in order to maintain their free status, and they don't charge people monthly fees to use their debit cards.
NEARY: So how is it that these other institutions can afford to offer free debit cards when these bigger banks talk about how much they need these fees?
LIEBER: Well, there's three different ways to answer that question. The first one is that if you're an online-only bank like ING Direct or USAA or Allied - those are some of the big ones - you don't have any branches. So your cost structure is much lower, so you don't need to make as much money in other ways. Then there are credit unions. Credit unions are, in effect, member-owned or member-controlled, and so they don't need to earn profits in the same way that banks do. They don't have shareholders to satisfy.
And then there's an issue with the way this legislation was constructed, to try and make sure that merchants aren't paying through the nose to accept these cards. And big banks, in effect, now earn less from the merchants than little banks and smaller credit unions do, so big banks are at a disadvantage - at least for the moment.
NEARY: You know, in discussing this around the water cooler, so to speak, I've heard people say, well, that's a nice idea to go to a credit union, but will I be able to find an ATM to use if I'm banking with a smaller institution?
LIEBER: Right. So online-only banks and credit unions have gotten sick of people asking those questions. And so the way they've solved for that, they've done one of two things: either they tell you to use any ATM you want on earth, and you just agree to reimburse some, most, or all of your ATM fees each month, or they hook you up with a network of no-name ATMs - i.e., the sort of ATMs that you'll see in a 7-Eleven or a drugstore, not the ones that are inside of a bank branch. And they say you can use these ATMs for free any time you want. And it turns out there are more of those ATMs in those networks than there are bank branches.
So theoretically, depending on where you live, that could actually be more convenient for you than being with Bank of America or Chase or Wells Fargo.
NEARY: So, Ron, do you expect a stampede away from these big banks like Bank of America, or do you think inertia will set in?
LIEBER: Well, inertia is an interesting way to think about it, because the problem that consumers have - and banks are well aware of this, and they've spent two decades trying to increase the number of tentacles they have into your financial life. They know that you have two or six or 14 different automated payments set up with your debit card number, with your bank account, and to untangle all of that and rebuild it someplace else is, at a minimum, you know, a couple hours of work. And I think what Bank of America is calculating is that most customers probably won't switch.
NEARY: Well, thanks for talking with us, Ron.
LIEBER: Thanks for having me.
NEARY: Ron Lieber is personal finance columnist for The New York Times.
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