Consumer fury forcing banks to kill debit fees

Score one for consumers.

Bank of America on Tuesday became the latest in a series of the nation's biggest banks to respond to a consumer uproar by dropping fees they'd only recently implemented on debit cards. The nation's top debit card issuer cited consumer feedback in dropping plans to add a $5 monthly fee.

Banks had been rolling out the fees as a way to recoup billions of dollars they say they'll lose from new federal limits on what they can collect from retailers on debit card swipes. Now they'll need to ferret out a Plan B.

David Robertson, publisher of the payment card industry trade journal Nilson Report, said the new fees "have become an unprecedented public relations nightmare for banks."

"Nothing I can remember matches this," Robertson said.

Wells Fargo & Co., Minnesota's largest bank by deposits, ditched a pilot program on Friday. Neither Minneapolis-based U.S. Bancorp nor Wazyata-based TCF Bank added monthly debit card fees, and recently both said they aren't going to.

While banks constantly experiment with fees, analysts said they can't recall the industry making such a swift, public reversal. "This is really quite dramatic," said Bert Ely, a veteran banking consultant at Ely & Co. Inc.

This time, even President Obama got in a few digs, suggesting in a television interview Oct. 3 that the fees were "not good business practice" and that the debit fee is "exactly the sort of stuff that folks are frustrated by."

But Ed Mierzwinski, consumer program director at U.S. PIRG, a consumer advocacy group that attacked the new debit fees, said he was surprised banks were canceling them altogether.

"I expected some of them to try to go from $5 to $2," he said. "But when you think about it, it was a really stupid fee, paying money just to use a card that saves the bank money."

Banks' next moves

David George, bank analyst at Robert W. Baird & Co. Inc., said the hasty retreat calls into question whether the big banks can recoup the swipe fee revenue, "at least over the near term."

Whatever they do, analysts say it will be less overt than a flat-out new fee. Expect more subtle approaches such as higher minimum balance requirements and monthly fees on checking accounts or per-transaction fees on debit cards. Banks may also encourage consumers to shift to credit cards from debit cards through rewards programs.

Most of the changes are likely to be closely connected to checking accounts, Hewitt said. "That's the logical place," she said. "They'll continue to test those fees."

Baird's George said he expects banks to examine the entire relationship customers have with the bank, charging more fees for those who have, say, only a checking and savings account, and fewer fees for those who use a broader range of products and services.

"I think it's going to be less explicit," George said. "It's going to be more difficult for customers to tell."

Not all consumer advocates were eager to call the retreat a win. Kathleen Day, spokeswoman for the Center for Responsible Lending, called the brouhaha over the debit card fees "misplaced."

"It drew attention away from the good thing BofA had done," Day said.