Birmingham expert predicts big banks will boost debit card fees

By Roy L. Williams, The Birmingham News 

A Birmingham credit card expert says bank customers should brace for new fees on debit cards as financial institutions seek ways to cope with new rules that will lower fees they charge merchants for debit-card transactions.

Bill Hardekopf, chief executive of Lowcards.com, said some banks have already begun boosting fees for debit cards in advance of regulations that go into effect Oct. 1 and cap so-called “interchange” or “swipe” fees at 25 cents per debit-card transaction, down from the current average of 44 cents.

Birmingham-based Regions Bank said two weeks ago it will add a monthly $4 debit fee for some accounts starting in October.

Regions, No. 1 in deposit share in metro Birmingham with nearly 28 percent, said it collected about $346 million from swipe fees in 2010, when the high rates were in effect.

Wells Fargo has said it will test a $3 monthly fee for debit card users in five states: Georgia, Oregon, New Mexico, Nevada and Washington. Customers can avoid the fee if they don’t use their debit card or sign up for designated checking accounts.

In June, Atlanta-based SunTrust bank launched Everyday Checking that charges customers $5 per month for debit card use.

Banks fought hard against the changes in swipe fees, which Hardekopf says generated an estimated $16 billion in 2009, according to the Federal Reserve.

“Banks generally give consumers a way to avoid these fees, but they may require a higher minimum balance or a broader banking relationship,” Hardekopf said. “Unfortunately, the customers who can’t afford to carry a higher minimum balance are the ones who will end up paying the fee.”

Regions spokeswoman Evelyn Mitchell said regulations have changed and, as a result, Regions and other banks are adjusting how they cover the costs of providing debit cards.

“For some customers that will mean a monthly fee for a debit card beginning in October,” she said. “One of the benefits of having a complete relationship with us is that we will continue to offer ways for customers to avoid the fee. We know that many consumers enjoy the convenience of using a debit card to make payments and we encourage our customers talk with their banker about which Regions account best fits their needs.”

Debit card usage has now grown to become more widespread than credit cards. Hardekopf says some banks have added reward programs to debit cards to entice customers to sign instead of swipe for a purchase. Signing means the purchase goes through the processing system like a credit card and generates a higher fee for the bank.

“These new rules and restrictions cost banks billions of dollars and they have to make it up somewhere,” Hardekopf said. “It is always the customer who ends up paying more. If monthly fees for debit card users prove successful in these test markets, look for these banks to assess this fee to all their customers as well as for other major banks to follow.”

John Kottmeyer, an adjunct professor of economics at Samford University’s Brock School of Business, said banks that recently encouraged the use of debit cards through reward programs and free checking accounts are now finding these programs and products to be too costly and eliminating most of those perks.

“This is a classic example of the cost of added regulation and the fact that the consumer ultimately bears the burden of the additional costs, in this case in the form of higher fees for banking services,” Kottmeyer said.

“The only ways to avoid the higher fees would be to concentrate banking services in a smaller number of banks or maintain larger balances, both of which would make you a more valuable customer while also giving the institutions some means of generating additional profit.”

Kottmeyer said banking customers should check out financial institutions as fees rise and will vary widely based on where you bank.

“It would be in the consumers’ best interest to shop around for banking services as fees and balance requirements will likely differ among banks,” Kottmeyer said. “It is quite possible that smaller community banks may not raise fees since this type of revenue is not as large a percentage of net income as it is for the larger banks.”

Alabama Telco Credit Union has already attempted to capitalize on fee-related moves by banks, with the credit union promoting the fact that its debit cards will remain free for customers. Birmingham-based America’s First Credit Union, which has 14 branches in the metro area, also will keep its debit cards free for members, said spokesman Phil Boozer.

“It just illustrates that credit unions are looking for alternate ways to make up lost income instead of passing them along to members,” said Patrick La Pine, chief executive of the League of Southeastern Credit Unions, which represents nearly 300 credit unions in Alabama and Florida.

“Credit unions, by their nature, exist to serve their member owners and what’s in their best interest. Adding fees to services is not one of them.”

Leave a Reply