I wanted to revisit the BAC debit card fee story that broke last week. This $5 fee seems, at first blush, just another financial brick on the back of the little guy. This new arrangement may actually be a better situation than the one that existed prior to the implementation of the fee. This fee is being implemented by BAC as a result of the financial reform law that most consumers don't understand and probably won't.
My understanding of the financial reform bill/law is to attempt to bring some transparency (sunshine) to the fees charged consumers. In the past, banks and credit card companies have "price fixed" the debit and credit card charges that retailers were levied when a consumer would come into their store and use these cards to make their purchases. In some cases as much as 44 cents per transaction. This doesn't sound like a lot of money but these "dispersed costs" are then "concentrated" by these financial companies "creating huge profits". Banks can no longer require retailers accept whatever the bank chooses to charge. Instead there will be a cap so now the bank will charge the customer directly...at least BAC and others will. These additional debit transaction fees will turn into a monthly bank charges. No free lunch here...the "dispersed costs" have just become a little more transparent.
Remember you and I are impacted by lots of these "dispersed costs" by all kinds of agencies. The smaller the "dispersed cost" the less we pay attention to it. Look at your utility bills sometime...I have at least 5 additional "dispersed costs" listed there along with the electric / phone rate fees. Your airline ticket...full of dispersed costs. The Sales tax is usually part of all of these transactions...so sales taxes is the universal "dispersed costs" for the concentrated benefit of our state and local governments. The financial world, too, is full of these "dispersed costs"...loads, expense ratio fees, 12 b-1 fees, redemption fees... are all example of "dispersed costs" and "concentrated benefits". Many of these are disclosed and we agree to them...some are not. The financial reform bill is a lame attempt to put some sunshine (as a disinfectant) on the many hidden "dispersed costs" we all pay for.
Getting back to this BAC $5 fee. BAC still wants to derive a charge / profit that they can no longer get from the retailer (who passed this fee along to the customer anyway). Prior to this new arrangement banks pedaled products like high interest checking accounts to illicit the customer (of the bank) as their foot soldier in deriving these profits. Banks would have you agree to be a mad "card swipers" by requiring the high interest checking account holder to make 12-15 transactions / month to qualify for these checking accounts high rates. "Go out and swipe" was the mantra. It became a consumer behavior...swipe your debit card here. Even radio show consumer advocates would encourage listeners to use you debit card to participate in these high interest rate checking accounts. Remember...no free lunch here. The real winners weren't the customer receiving high interest rates but rather the banks. The retailer who had to pay these fees just adjust their priced higher to cover these transaction fees causing products to be more expensive for the customer who thought they were getting a high interest for nothing more than a behavior modification. The banks created and encouraged this type of behavior through these kinds of accounts...swipe, swipe, swipe. Now, with this new arrangement some people will just accept the $5 fee to continue this behavior...some won't.
For some the $5 fee is going to make people think twice before they use their card now and may even cause them to go to another bank that doesn't charge a fee. Banks are anything but transparent when it comes to their methods of finding profits. At least now consumers can choose their debit card company according to this new/old fee. The retailer may bring prices down on the products as a result of not being charged by financial companies...maybe they won't. Maybe a better situation for consumers for the moment. Remember "dispersed costs" and "concentrated benefits" are a way of life for profit centers. We need to pay more attention to these charges and try to avoid as many of these as we can.
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Comments
BoA has introduced a lot of new fees, minimums and the like in the last year or so. But, just like the toasters, won't more bank eventually gravitate and once the crowd collects, follow it. (I'm assuming BoA doesn't loose massive numbers.) I see CitiBank is finding this BoA fee to be a opportunity for customer friendly advertising.
I agree...BAC loves to fee ya". I don't have an account with them but my elderly mom does. I had her stop receiving paper documents...$3 fee/month. I noticed they charged a $44 fee for new checks. It never dawned on her that the nice people at her bank would do such a thing as to charge for checks.
I am moving her to a more customer friendly bank. Sad thing is she's getting a little to old to change her behaviors...and banks.
There was a period of several years (80s-90s?) when banks started charging their own customers for using other banks' ATMs, but they were prohibited from charging other banks' customers for using their ATMs (what is now running $2-$3). At that time, I slammed BofA on usenet for being one of these banks charging their own customers. A response I got from a very knowledgeable poster was that he didn't care, since BofA ATMs were everywhere (in Calif.). That was, and is, true. BofA and Wells Fargo together have something like 50% of the California market. They're "everywhere you want them to be". (No wait, that's Visa, formerly BankAmericard, created by, yes, BofA.)
People tend to stick with the bank they've been using - familiarity, ease of use (nearby), and in our networked age, difficulty in changing all those automatic payments and transfers. That's why the banks are willing to give you cash to get you in the door. (I think the toasters were something different; that was in an era, before ATMs, and even before NOW accounts, when commercial banks could only give 5% on savings, and nothing on checking, so they competed with "free" gifts.) BofA, like other banks, is likely counting on this same consumer reticence to move now.
It's been many decades since the former Bank of Italy catered to the "common man". San Franciscans who know their history know that it was AP Giannini's bank that helped get their city back on its feet after the great quake. As this post concludes: presumably Giannini is rolling in his grave right about now.
Thanks for the personal commentary msf,
I was in Hawaii with this 88 year old BofA customer last winter and we both were amazed that not one BofA exists on the islands of Hawaii...I guess they are BofMainlandA.
As for these ATM fees... my bank, USAA, was the first to provide its customers with ATM rebates on ATM fees anywhere in the world. All ATM are free. Others great banks have followed suit. Another neat USAA free bank feature is mobile banking. I can scan a personal or business check using a smart phone or scanner and make a deposit directly into my USAA account. The money is available the moment the transaction is completed which takes minutes. USAA is military affiliated and has membership requirements but, any family member related to a service man or women is eligible. Worth considering if you are bank shopping.
Do you remember the Gulf commercial where a professional service man comes running out to provide full service. the young man just so happens to be on a date with a very cute girl. The young man tries to sound very important as he asks the eager attendants for..."50 cents of Good Gulf". As he hands the attendant the coins the attendant springs into action. The young couple can't believe their eyes...as he fills the tank, checking the oil, washing the windshield. The teenagers aren't sure what to make of all this service and so they try to wave off the attendant. As the car care continues unabated the young man and his date start searching through the inside of his car. His girlfriend hands him another small loan. The young man asks the attendant for one more thing and with very impressed look on his face proclaimed..."hey Mister can we have 25 cents more of good Gulf"...now that's was customer service!
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Meanwhile, while Citibank has notified me that unless I keep a larger balance in my checking account they will charge an account maintenance fee. Supposedly this is better for me. The way to escape the fee is to downgrade to basic checking from EZ Checking (which we did), have direct-deposit of paychecks (which we had) and do some payments using their online bill pay. I am waiting for the day they will ask me for online bill pay which will be the end of my relationship with Citibank.
My other bank, Wells-Fargo has not yet forced newer fees yet. Staying put.
It just becomes a more interesting game to play. Schwab gave up its Visa card, and the issuer, BofA, is about to make changes (likely cutting its 2% rebate and/or removing its waiver of the Visa 1% foreign transaction fee). Chase recently did away with the former WaMu's "free checking for life", adding minimum balance (or direct deposit) requirements. If one picks different institutions/cards for different purposes, one can still do very well getting rebates and no fees. And with everything electronically linked, it's easy to move money around to where you need it.
Been playing the game for many years. Just takes a little discipline, knowing what's in your wallet. (Which, incidentally, just got better for foreign travel; still no foreign transaction fee/currency exchange fee, and now a 1.5% rebate. Not every bank is moving in the same direction.)
Citibank (C) to charge USD 20 monthly debit card fee to some customers, according to NY Post
US STOCKS
http://ransquawk.com/headlines/173182
Others saying the $20 is an overall account fee, but holy ****.
http://www.myfoxhouston.com/dpps/business/citibank-to-charge-$20-monthly-fee-for-certain-checking-accounts-dpgonc-20111005-fc_15341882
I don't even have an ATM card. Wifey insists on having one. OK. And get this: the advertising tells you that the XYZ network's machines do not charge us, because we are using a debit card within the XYZ network, whenever we use the debit card within the splendid network. But when I called to confirm, I was informed there was a "terminal usage fee" which was something separate and different, even though the XYZ network would not charge us. Advertising has become the art of spreading legally-permitted lies. Nuff said.