Debit Fees Pushing Minorities Out Of Banking System?

Bank of America, Wells Fargo and Sun Trust recently announced that they will charge customers a monthly fee to use their debit cards for purchases. Some financial experts are expressing concerns that the fees will push low-income and minority customers out of the banking system. Michel Martin hears from Tell Me More's regular finance contributor Alvin Hall.

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MICHEL MARTIN, Host:

I'm Michel Martin, and this is TELL ME MORE, from NPR News. Coming up, many states are coping with shrinking budgets. So they are looking for cuts wherever they can find them. We'll talk about the effect of budget cuts on the courts and how that can affect everything from traffic appeals to child custody issues. We'll have that conversation in a few minutes.

But first, to matters of personal finance. Many people have turned to debit cards in recent years as a way to be more financially responsible. Instead of carrying wads of cash or using their credit cards, millions of Americans have started using their debit cards to pay for things. That takes the money right out of their checking accounts and helps them avoid costly interest charges.

Well, now debit cards are getting more expensive. Recently, Bank of America, Wells Fargo and SunTrust announced that they are going to start charging their customers a monthly fee when they use their debit cards to make purchases, as opposed to just withdrawing cash.

Some financial experts worry that these fees will force low-income and minority bank customers out of the banking system entirely. We wanted to talk more about this, so we've called upon, once again, Alvin Hall. He's a regular contributor on matters of personal finance and the economy, our Money Coach. Welcome back, Alvin. Thanks for joining us.

ALVIN HALL: I'm very glad to be here to talk about this subject.

MARTIN: Why?

HALL: Because banks are going crazy with these fees. About a decade ago, the profit scenario at banks started to shift. They started to make less money from lending and more money from charging people fees. And what we're seeing now is the continuation of what I call fee madness in the banking sector.

MARTIN: So Alvin, why are these fees being introduced now?

HALL: In response to the Durbin Amendment to the Dodd-Frank Act. Banks were limited in the amount they could charge for each swipe of a debit card. In the past, they could charge 44 cents. Now that's limited to a maximum of 24 cents. Also other fees have been capped, including overdraft fees. So therefore, to make up for the loss in revenue, they're now charging a $5-per-month fee to use your swipe card.

MARTIN: And the Durbin Amendment, of course, refers to an amendment offered by Illinois Senator Richard Durbin to something called the Dodd-Frank legislation, which was the financial overhaul that we've talked so much about. Will these fees automatically be assessed to accounts, or do they only kick in after a purchase is made?

HALL: Ah. They kick in only after you use the debit card. And if you have an account above a certain amount - and that differs at various banks - then you won't get hit with those charges. Also, if you have your mortgage at some of the banks, then you will not get hit with those charges.

MARTIN: Well, do you - you know, as we noted that there are people who've been concerned about this for some time. Back in March, the NAACP wrote a letter to the Speaker of the House John Boehner as this financial legislation was moving its way through both houses of the Congress. And they were asking how the legislation might lead to higher fees for consumers, and they asked policymakers to determine whether there might be some adverse impact on, quote, "at-risk communities, including communities of color."

So it sounds as though this was anticipated.

HALL: Well, it was a self-fulfilling prophecy. Over the last decade, we've seen more and more of the power being placed in the hands of financial institutions. So when any legislation is proposed that they object to, they always say this is going to result in higher fees. This is going to result in layoffs.

And because they have the power to make that happen, they choose to do it. Banks in the old days did not look at making these outsized profits. But today, they look at the investment banking community, and they want to make the same degree of profits. So, of course, as soon as this happens, they start to hit anyone who cannot afford to move or who may not be able to have enough money in the bank to avoid the fees.

You know what's sad about this situation to me is that we live in what's touted to be a free-market economy, but it's becoming increasingly clear that a lot of the financial institutions view profits as an entitlement. They run this bank solely to benefit the shareholders. They do not think about the people who have their money there who should not be charged these exorbitant fees to use our own money.

MARTIN: Well, let me ask you about this. From their perspective, that is their job. I mean, just from their perspective, isn't that how they see their job? They see their job as maximizing value for shareholders, don't they?

HALL: This has been a shift in banking that's occurred about over the last 15 or 20 years. Before, banks were happy to make reasonable profits, to tick along having a certain moderate growth per year. However, when the Glass-Steagall Act was repealed and you had the merger of investment banks with commercial banks, you then had a very stronger emphasis on profits that mimic those of Wall Street. That's been the major change.

So now everyone speaks, in the banking sector, from largely the same hymnal. They all want more profits. We want to charge more fees. They need to come back to a more reasonable level of behavior.

MARTIN: I guess - but I still have to press the question about why it is that they should feel this social responsibility. As I understand it, they don't see their institutions as having a social responsibility. They see it as having the responsibility to maximize profit for their shareholders. So why should they see their role any differently? Why shouldn't they just get whatever they can get? And if consumers have an alternative, why wouldn't they just vote with their feet?

HALL: Because banks have lost touch with their local communities. If you think back in the past, banks were really there to fund local businesses, fund communities. With these megabanks, they're more and more detached from that. So they view their shareholders as the marketplace they must serve, not the individuals who are on the street working and making their deposits in the bank.

MARTIN: Well, so the final question is: Are there alternatives? If you feel that this is unwarranted and you feel that this fee is inappropriate and you don't want to pay it, are there alternatives?

HALL: Yes. People can choose to move to another bank. They can look for a credit union. They can look for another bank. Some of them only charge small amounts if you have an online banking, or some have branches that you can use. But the choice is with the customer. It's time to show your displeasure by leaving your bank if you don't feel they're listening to your needs.

MARTIN: Alvin Hall is our Money Coach. He's our regular contributor on matters of personal finance and the economy, and he joined us from our studios in New York. Thanks, Alvin.

HALL: You're most welcome.

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