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Thousands Vote With Their Feet, Say Goodbye to Big Banks

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Two weeks ago, I wrote about whether you should use your credit card more in light of new fees several banks would be charging their customers for non-ATM debit card transactions. Bank of America (NYSE: BAC  ) led this group, with plans to charge customer $5 for each month they use their debit cards. JPMorgan Chase and Wells Fargo (NYSE: WFC  ) had rolled out charges as tests in certain regions. Other banks, like SunTrust , planned on adding fees to its free checking accounts. Citigroup (NYSE: C  ) planned on raising its minimum balance requirements and monthly maintenance fees by the end of the year.

The new debit-card fee was designed to recoup lost revenue from debit-card swipe fees, estimated at $8 billion, which the Durbin Amendment of the Dodd-Frank Act had limited. But because of customer protest, most of those plans have been scrapped. SunTrust and Regions Financial (NYSE: RF  ) have canceled their fees and refunded customers who had been charged. Citing "customer feedback and the changing competitive marketplace," Bank of America has cancelled its debit-card charge. Wells Fargo is canceling its five-state pilot program, which was set to begin Nov. 15.

Opting out
The banks may have been beaten into submission by outraged customers, but it's no doubt a temporary victory. A Facebook movement for Bank Transfer Day, held Nov. 5, called for people to switch from for-profit banks to nonprofit credit unions. The movement began with 500 people and by Saturday had 73,000 supporters, according to Bank Transfer Day's founder, Kristen Christian. "If you don't believe in a company's practices or feel that a company's practices are unethical, then, very simply, you should not have money with that company," Christian wrote in a press release.

It's a sentiment that resonated with bank customers. From Buffalo to Los Angeles, lines formed at credit unions and small banks on Saturday. In several cities, the movement was joined with the Occupy Wall Street movement, marching through town centers and protesting local branches of large banks. In Oakland, protestors temporarily shut down a Wells Fargo branch.

The Credit Union National Association estimates that at least 650,000 customers have joined a credit union since Bank of America announced the now-defunct fee on Sept. 29. Since then, credit unions have added $4.5 billion in new savings accounts, from both new and existing members.

We won't know until quarterly earnings are reported if Bank Transfer Day will have any impact, but it's not likely. $4.5 billion is a large amount for credit unions, but each of the 10 largest banks have more than $100 billion in assets. Individual accounts, with moderately low balances, such as the type that would have been hit hardest under many of the proposed fees, don't typically generate much revenue for larger banks. And the number of people who committed to switch to a credit union is far less than 1% of Bank of America's customer base.

Business as usual
Bank Transfer Day may have changed things for the customers who switched, but it doesn't look like it changed things for the banks they left. The debit-card fees may be off the table, for now, but banks will hardly stop trying to tack on fees to recoup the lost revenue. Banks such as BB&T (NYSE: BBT  ) , SunTrust, Fifth Third (Nasdaq: FITB  ) , and Sovereign Bank (part of Banco Santander (NYSE: STD  ) ) are looking for other ways to generate revenue, including pushing customers toward credit cards and prepaid cards, which aren't subject to the debit-card cap.

The Foolish bottom line
While the banks may have rescinded their debit-card fees, they're looking for creative ways to recoup those fees in other areas. In the long term, those fees may be tacked on to previously free checking, a higher overdraft or low-balance fee, or other transaction fees. In the short term, the aggressive advertising for credit cards has begun, and will no doubt continue. Charge wisely, Fools.

Regardless of whether you're switching back to plastic or staying with cash, your credit card may soon be worthless. The Motley Fool's Rule Breakers team has taken a hard look at the industry and created this special video report, "Your Credit Card May Soon Be Worthless. Here's Why." It's one of our most popular features. Click here to watch it today. It's free for Fools.

Keep an eye on how these banks are performing in the days ahead by adding these companies to My Watchlist.

Fool contributor Molly McCluskey is a proud credit union member, and does not own shares in any of the banks mentioned. The Motley Fool owns shares of Wells Fargo, Citigroup, Bank of America, JPMorgan Chase, and Fifth Third Bancorp. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (14)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 07, 2011, at 1:35 PM, pondee619 wrote:

    Shouldn't we be thanking Congress for this? By limiting the fees charged merchants who accept credit/debit cards, Congress sent the banks out after us to make up the income shortfall. BTW has anyone seen any lowering of merchant prices because as a result of thier fees being limited? No. We, the buying public, are paying the same prices, the merchants are being charged less, and now, we, the buying ublic, are being asked to, and will, make up the income shortfall to the banks. Thank you Congress.

  • Report this Comment On November 07, 2011, at 3:52 PM, Darwood11 wrote:

    I seldom get a discount for paying via "cash" or check, even thought the merchant avoids that bank charge. In fact, because of fraud, many smaller merchants I purchase from now avoid checks entirely and even verify the validity of a $5 bill. Those merchants aren't concerned about the "evil" banks; and seem to have no concern about the use of my credit cards, as long as the purchase exceeds a certain minimum value. They are concerned that I and my fellow citizens will purchase merchandise with phony money or fake check, thereby ripping them off. I've chatted with a few and they tell me that they have been burned, and many times. In these times, with margins squeezed, they've raised prices slightly to cover the bank fees and no longer take big hits. If I use cash, it's a small kick to the bottom line.

    Some restaurants now request that tips be paid with cash. That's how tight the margins are.

    I've always considered checking, debit cards and credit cards to be a "service." However, I never expected they would be "free."

    I realize that if I park my money at a bank or credit union, that they will use that money and if a bank, will then profit by it. If the profits are acceptable (if my deposits are large enough) I can expect some additional perks, such as free checking, including free printing for checks, etc.

    And so it is. I maintain balances at a credit union and at a bank, and I pay only monthly fees for check images, which are reasonable. It's a symbiotic relationship and we both benefit.

    I also realize that the banks are using part of the profits from my deposits to cover a lot of bad debts. Debts sometimes acquired by even the smaller "community" banks, because other people didn't keep their agreements with the bank.

  • Report this Comment On November 07, 2011, at 5:34 PM, mrkhan1024 wrote:

    Response to pondee:

    Regardless of whether bank fees for consumer debit use ultimately resulted in higher retail costs at the register, the banks were holding retail businesses hostage through an uncompetitive market. Banks issued debit cards based on which card company would offer them the highest per use charge, which was the amount being passed right on to businesses. Those fees tripled in 10 years, while costs to process card transactions decreased.

    Further, regarding retail prices, if the average transaction was hitting retailers for 3%, and 25% of transactions are debit, then yeah, you're probably not going to notice the price of your $3 box of Cheerios going up 2 cents... However, a 0.75% increase to cost of goods sold doesn't go unnoticed by most companies. If the new law saves companies... or consumers... on half that money, well, pick your poison: a $5 fee at the bank, or a penny extra on 500 items at the grocery store. The pennies add up. It's like Superman 3.

    And while 3% may be an average, companies like Wal-Mart were able to negotiate much better rates than your mom and pop Main Street stores. Most of the time, the fees are structured as a percentage plus a flat fee i.e. 20 cents plus 3%. When people are swiping debit for a $3 latte, the shop would pay 29 cents. That's almost 10%. Wonder why most require a minimum purchase or stopped carrying them altogether?

    Lastly, notice what's happening with the big banks who are trying to pass along that fee. Customers are fleeing in droves. Why? Competition. There are regional banks and credit unions who are happy to take your business if the big banks are going to try to charge you to loan out your money. Competition is what we didn't have before the new law, and ultimately that's what puts prices into equilibrium.

    Consider yourself educated, should you come back to read.

  • Report this Comment On November 08, 2011, at 5:25 PM, XMFAlaska wrote:

    Hi folks. Thanks for the great insights and thoughtful comments. I have little to add, except to Darwood11's point about restaurants requesting tips in cash.

    While it's true that the margins are slim, it's also true in many cases that cash tips are not reported. Since the minimum income varies widely by state for tipped versus non-tipped employees, reported income may be significantly different than actual income. This comes into play particularly in cases of student loan eligibility, and unemployment, while of course can be damaging for things like securing car loans, credit cards and mortgages.

    The flip side of that is in a place like San Francisco, where the minimum wage is nearly $10 an hour, and is the same for both tipped and non-tipped employees. When I bartended briefly in SF years ago, my tips, when added onto my hourly wage, put me in the next tax bracket. You could see how in that case, as well, many people preferred to be tipped in cash, and opted not to fully declare their cash tips.

  • Report this Comment On November 08, 2011, at 6:49 PM, ttedford wrote:

    I think regardless of whether or not they pull back on the fee policy the damage has already been done and the trust was lost with most consumers. I myself work for Texas Trust Credit Union. We put together a video with 5 tips on what to look for if your switching banks, regardless of who you switch to. You can view that here https://www.texastrustcu.org/think

  • Report this Comment On November 08, 2011, at 10:24 PM, XMFAlaska wrote:

    "Allowing a financial institution to hold your money is a privilege." That's a great reminder, ttedford, and the video is a great resource. Thanks so much for sharing.

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