Bank of America and the Power of Unintended Consequences

They say social networking sites are the best way to gauge how the world feels about something. So when Bank of America (NYSE: BAC  ) announced last week that it was going to begin charging $5 a month for most customers who use a debit card, I checked to see what Twitter had to say. No surprises:

"Bank of America is like a man who's been saved from a burning building and then kicks the fireman in the ----," said one customer.

"It's illegal to rob a Bank of America, but legal for Bank of America to rob you of 5 dollars every month for spending your own money," wrote another.

"$5 a month to use my OWN MONEY?"

"Loan to the rich, steal from the poor."

"Blood boiling."                                                                        

And so on.

The outrage is understandable. When something that used to be free suddenly costs money, you feel abused. When the charges come from a bank that gulped tens of billions of dollars in bailout money, you feel robbed.

But the anger is misguided. Bank of America isn't charging a new fee to rip you off, or to goose its profits. It's doing so in response to new regulatory changes in the debit card market. Someone is to blame for the new $5-a-month fee, but it's not Bank of America.

B of A is hardly alone here. SunTrust (NYSE: STI  ) recently announced a $5-a-month fee for debit card usage as well. Wells Fargo (NYSE: WFC  ) is testing a $3-a-month debit card fee. Ditto for JPMorgan Chase (NYSE: JPM  ) . Citigroup (NYSE: C  ) just raised the monthly fee of its basic checking account by 25%. Even credit unions that are quick to advertise that they still offer free checking have reduced or eliminated rewards in recent months.

Why the changes, and why now?

As of Oct. 1, new regulations cap the amount banks can charge in so-called interchange fees. These fees are collected by payment processors Visa (NYSE: V  ) and MasterCard (NYSE: MA  ) every time you swipe your credit or debit card, and are borne by merchants.

Here's how it had worked. Say you spend $100 at the grocery store. Visa and MasterCard extract a few pennies in processing fees, and your bank receives a 1%-3% interchange fee for providing the cash. The grocer in this case nets about $97 in proceeds.

But with new rules that became law this weekend, interchange fees on debit transactions are now capped at $0.21 plus 0.05% of each transaction, down from an average of $0.44 per transaction.

Banks had relied on these interchange fees to cover the cost of checking accounts. And, yes, checking accounts do cost money to maintain; banks weren't offering a free service because they wanted to do something nice for you. People who complain that banks are now charging to access your own money are missing a key point: Banks are charging so they can cover the cost of letting you keep your money secure, and available in ATMs all across the country.

Being outraged at this is like being outraged that storage units charge money just to let you store your own stuff. The storage company has overhead, and so do banks. According to a report by Marsh & McLennan, it costs banks between $250 and $300 a year to maintain a checking account, and half of all checking accounts are unprofitable for banks, since they don't hold nearly enough cash to lend out and earn a significant net-interest profit. Now that interchange fees have been capped at half of previous averages, banks have to seek new ways to recoup costs. In come the monthly fees.

How much will banks need to recoup? One report by the Federal Reserve estimates interchange revenue will drop by between $33 billion and $39 billion over the next two years. It concluded: "To offset these lost revenues, banks and credit unions will increase fees to their retail customers." There's good precedent for this. Since Australia capped interchange fees in 2003, "costs for card users, such as annual and other fees, have increased," a report by the Government Accountability Office found.

The biggest irony: The whole point of the new interchange fee cap was to provide relief for businesses selling small-ticket items, like coffee and newspapers, which were getting crushed by interchange fees. But rather than reducing interchange fees on small-ticket transactions, the new rules sent them through the roof.

In the past, small-ticket transactions were charged an average of 1.55% plus $0.04 in interchange fees. According to Bloomberg, Visa and MasterCard are now going to seek the maximum $0.21 plus 0.05% on all transactions. That turns the fee structure on small-ticket items upside down. For a $2 transaction, the old rules generated a $0.07 interchange fee. Today, it will be $0.22. MasterCard responded tellingly: "As we have noted throughout this process, setting price caps will -- and has -- created distortions in the market."

No one's better off, everyone's upset. Behold the power of unintended consequences.

Fool contributor Morgan Housel owns B of A preferred. Follow him on Twitter @TMFHousel. The Motley Fool owns shares of Bank of America, JPMorgan Chase, MasterCard, and Citigroup. The Fool owns shares of and has created a ratio put spread position on Wells Fargo. Motley Fool newsletter services have recommended buying shares of Visa. 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.


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  • Report this Comment On October 03, 2011, at 1:00 PM, trecer wrote:

    Why should small business owners be the one to pay for peoples' free checking accounts? This article misses that point with its strange logic of "Those poor big banks, it's not their fault." If big banks' checking account services cost so much money, then the checking account users should pay for them, not the businesses who were losing a significant percentage of their profits under the old system ($.40 per transaction is a huge amount when many purchases are for only several dollars or less). So go ahead and charge people the $250/year that it ostensibly costs the big banks to service checking accounts. Then see what happens: many customers will move to small local banks and online banks, which mysteriously don't seem to have any problem maintaining free checking. Maybe the big banks just got their business model wrong? Then it's clearly time for that model to be phased out. Charging debit card users $5/month for the privilege of buying things on their cards just shifts the cost of credit card accounts to debit card users. Why should debit card users be any more willing than small business owners to subsidize the big banks' faulty checking account models? The unfortunate thing is that debit card users are more likely to be lower income people who don't have the easy option of switching to credit card use and perhaps aren't aware of other options like credit unions and online banking resources.

  • Report this Comment On October 03, 2011, at 1:11 PM, TMFKlesta wrote:

    "Being outraged at this is like being outraged that storage units charge money just to let you store your own stuff." This analogy would work if those storage units were free before, but they weren't.

    In the end, I think these fees will stratify the banking industry. There will be those customers who always want a bricks-and-mortar bank, and $5/month won't really matter to them. But many others will continue to flock to online-only banks that don't charge ATM or "maintenance fees." Others will look to local banks or credit unions. There will be the "Southwest Airlines (bags fly free)" of banks.

    I think Bank of America's real problem is timing. This is coming after TARP and the "robo-signing" debacle. Consumers are very negative on BAC. And I have a feeling the bank will lose many fee-paying customers when this is enacted -- not to mention the effect layoffs will have on customer service.

  • Report this Comment On October 03, 2011, at 1:14 PM, sydiot wrote:

    @trecer is absolutely right. If banks can't make checking account free and can't turn a profit on the billions of deposits they hold then small businesses should not have to subsidize electronic currencies and interchange fees. Let the people who choose cash use cash, and the people who need to use a card, let them pay for it. If they want to change banks, let them go to a local or credit union that understands how to make money as a commercial bank.

  • Report this Comment On October 03, 2011, at 1:16 PM, ManOnTheBeach wrote:

    Very simple. I won't pay for the privilege of accessing my own money. The banks make money on my checking while they hold it. I'm not paying to get it back. There are plenty of banks and credit unions that want my business. Goodbye, Bank of America, I'm going down the street.

  • Report this Comment On October 03, 2011, at 1:20 PM, rayzur9 wrote:

    It was my understanding that banks made money from investing the combined funds throughout its checking account holders accounts.

    I cant see one instance where a BofA "teller" was either qualified or capable of doing $11 worth of "work".

    And is why I switched to a credit union.

  • Report this Comment On October 03, 2011, at 1:35 PM, thedread wrote:

    Very interesting article, but i wished the author had told us more about how banks used to cover the cost of the "free checking" accounts before making money from electronic interchange. Apparently, they didn't need that interchange money to cover cost..hence more than likely the interchange fees are a profit center for banks. Now they will be making less profits..boo hoo hoo. Remember how much money they were going to save from using ATM's but they needed temporary fees to cover the cost of the machines....wonder if they have paid for those machines yet?

  • Report this Comment On October 03, 2011, at 1:37 PM, TMFHousel wrote:

    <<Very interesting article, but i wished the author had told us more about how banks used to cover the cost of the "free checking" accounts before making money from electronic interchange>>

    With monthly fees. Free checking is a fairly new phenomenon.

  • Report this Comment On October 03, 2011, at 1:40 PM, shedin wrote:

    This philosophy "Being outraged at this is like being outraged that storage units charge money just to let you store your own stuff." is ridiculous and is an insult to the intelligence of most americans. If the storage units "used" my items in storage and rented/leased them out for a profit then I would expect to have the storage unit free of charge. IE: the bank uses my stored money to make a profit therefore I should not be charged a bank fee when I put my money in thier bank and they profit off using my "stored" money. The income they make off all of us by loaning out our savings should well offset the balance of ATM charges.

  • Report this Comment On October 03, 2011, at 1:43 PM, TMFHousel wrote:

    <<If the storage units "used" my items in storage and rented/leased them out for a profit then I would expect to have the storage unit free of charge.>>

    This point is addressed in the article. Most people don't hold enough money in their checking accounts for banks to earn a tiny fraction of overhead costs in a net margin spread.

    Think about it. If the net interest margin is 3%, and someone holds $3,000 in their checking account, the bank will earn $90 in net interest off that account per year. If the average overhead on a checking account is $300 a year ... you get the point.

    On that note, most banks still offer free checking if the account balance is large enough. In BofA's case, I believe it's $20,000.

  • Report this Comment On October 03, 2011, at 2:00 PM, MaxTheTerrible wrote:

    Ahh, it's so easy to get blood boiling in people nowdays... Am I the only one who don't see a real problem here?

    For consumers who are outraged - there are numerous options for banking services, so vote with your feet if you feel like it (but then don't complain that ATM machines charge outrageous fees for out of network banks). Alternatively, stop using your debit card for purchases.

    Small business owners can do one or more of the following: (i) stop accepting plastic for purchases under a certain amount (this is already a widely-used tactic, at least where I live); (ii) stop accepting plastic all together; (iii) charge customers an extra fee for using plastic (my local pizzeria charges an extra 50c for using a credit card, for example).

    Personally, I never had a problem with BAC customer service, so I would stay with them for now. I'll leave when they start charging for basic checking services.

  • Report this Comment On October 03, 2011, at 2:15 PM, Billyraybobbates wrote:

    The analogy is being attacked incorrectly. The banks are charging you to access your money. The storage facility doesn't charge you to access your 'stuff'.

    If it costs $300 to handle a checking account, charge $300 + a mark-up for this item. Then we'll see how many people really need a checking account.

  • Report this Comment On October 03, 2011, at 2:26 PM, syntheticzero wrote:

    I have to say, I'm disappointed by the poor quality of reasoning in this article. The analogies used here are quite absurd.

    First of all, banks make money (or at least they did in the old days) by making loans, not by charging ridiculous "fees". You deposit your money, they lend it out, that's the deal. It's reasonable to require a minimum balance or a minimum average balance to avoid fees --- that's been around forever. But Bank of America is only going to waive fees for people with $20K or more in deposits --- truly absurd, when it costs less for BofA to process debit transactions than it does to process paper checks. It's almost certain that those who don't switch banks because of this are going to switch to paper checks --- surveys already show that only 11 percent of customers are planning to switch to credit cards, and a much larger percentage are planning to switch to paper checks, which would dramatically increase the costs to the bank (as well as the retailer).

    Another survey indicates that 75% of BofA customers have said they plan to switch banks. Previous studies have shown that 3/4ths of those who say they are going to switch banks eventually do. If BofA goes through with this, they could lose half of their depositors. Bank run, anyone?

    Wall Street seems to hate regulation, and this is evidently an "in your face" to Washington DC. But the fact is, the decision is boneheaded, strategically incompetent, and tactically absurd.

  • Report this Comment On October 03, 2011, at 2:31 PM, TMFHousel wrote:

    <<But Bank of America is only going to waive fees for people with $20K or more in deposits --- truly absurd>>

    I'd like to see your reasoning for calling this absurd. Please keep two points in mind:

    1) It costs $250-$300 a year in overhead to maintain a checking account.

    2) A good net interest margin is about 3%.

  • Report this Comment On October 03, 2011, at 2:40 PM, BDEI wrote:

    Interesting article. My money is used to invest and lend. It is mine yet they use it to make money for themselves, charge me for the use of it and then use the investment to pay their CEO how many millions a year? I stopped banking a year ago. Closed my account, keep cash at home in a safe. I found that using money orders is actually cheaper per year than paying bank fees. I drive most of my bills to local businesses that we get services from as I am going around town. I know what I have no fees and no hassle. Have you ever checked to see how many un-banked Americans there are? Millions and it works.

  • Report this Comment On October 03, 2011, at 2:59 PM, idahogeo wrote:

    I kind of liked the analysis in this article and it's a reminder that the "convenience" features of checking accounts benefit the banks more than the customer. Over the last decade, we've all become accustomed to services such as debit card withdrawals, "automatic" bill payment, and direct deposit, the latter of which is mandated (unfortunately) by many employers. All of these conveniences have made bank customers "stickier" because it is somewhat painful to switch banks. I think many BoA customers are upset because they've come to rely on these conveniences and hate the thought of canceling their auto-pays and changing their direct deposit. If these customers were adequately self-protected by paying bills manually (it's still pretty easy online!) and using a credit card for your plastic purchases (they offer better consumer protections, anyway) then returning BoA's one finger salute amounts to opening an account somewhere else and telling HR where to send your money...no big deal. Personally, I've had bad experiences with BoA and JPM/Chase, so I've canceled all dealings with them.

  • Report this Comment On October 03, 2011, at 3:15 PM, MaxTheTerrible wrote:

    @ BDEI

    "I found that using money orders is actually cheaper per year than paying bank fees."

    Really?! I find it hard to believe that you paid that much in bank fees (if you really did, you should have just change the bank and go with Bank of America!). I've been with BAC for the last 5 years and paid *zero* in fees.

    "I drive most of my bills to local businesses that we get services from as I am going around town"

    I don't know about you, but I would definitely call it a hassle.

  • Report this Comment On October 03, 2011, at 3:48 PM, TMFBreakerRob wrote:

    Shame on you, Morgan, for telling it like it is! You've stirred up the rabble again. LOL

  • Report this Comment On October 03, 2011, at 4:15 PM, Motley2Motley wrote:

    "Fool contributor Morgan Housel owns B of A preferred." Might tell you everything you need to know about this article. Some of us understand where the fee came from. The outrage isn't misguided. Read these comments and you'll get some of the reasons why it's not. But also I think an undefined source of outrage is the fact legislators (rightly or wrongly) tried to protect consumers. But banks then turned around and said, "Well, we can't STOP screwing the consumers, we need to get that money SOMEHOW," and enacted the fees. Another case of billionaires (banks) fighting billionaires (government) and the regular people get the raw end of the deal in the end. (Again, really the middle class is most affected.) Maybe most importantly, as an investment site, should we be talking about Brian Moynihan's performance and how he is killing BAC shares with his decisions? This is just the latest one.

  • Report this Comment On October 03, 2011, at 4:36 PM, sheldonross wrote:

    "my local pizzeria charges an extra 50c for using a credit card, for example"

    That's actually against cardholder agreements and your "local pizzeria" can get hit with fines/have their processing revoked.

    You can offer a "discount" for cash purchases (ie gas stations), but not a fee for credit card processing. In practice it's the same thing, but credit card processors do not allow you to charge for credit card purchases (or force minimum purchase amounts as some small business try to do).

  • Report this Comment On October 03, 2011, at 4:39 PM, MaxTheTerrible wrote:

    @Motley2Motley

    I doubt BAC paid Morgan for this piece, but I guess we should hear it from the horse's mouth, so to speak.

    The outrage is totally misguided as it should be directed to those responsible for the cause (i.e. our brilliant lawmakers in Washington), not the effect.

    Moynihan is not directly responsible for current BAC woes - his predecessor is. I would argue that strategically he's doing all the right moves (the latest one included).

  • Report this Comment On October 03, 2011, at 4:46 PM, sheldonross wrote:

    "(or force minimum purchase amounts as some small business try to do)."

    All I have to recind this portion of my prior comment, It looks like - according to the 2010 credit card reform law - merchants can set a minimum purchase requirement up to $10 dollars.

    http://www.creditcards.com/credit-card-news/credit-card-mini...

    They still cannot assign a surcharge to credit card transactions. So your pizzeria is still breaking the rules.

  • Report this Comment On October 03, 2011, at 4:46 PM, TMFHousel wrote:

    No, BAC didn't pay me for this piece, which is a ridiculous accusation.

    And as a preferred stock owner, how BAC's earnings ebb and flow isn't of much concern to me. I get a fixed dividend.

    Importantly, as noted in the article, BAC is hardly the only bank raising fees ... in fact, essentially *all* banks are.

  • Report this Comment On October 03, 2011, at 4:50 PM, MaxTheTerrible wrote:

    @sheldonross

    Now that you've pointed out, I think it actually is a 50 cent "discount" for cash purchases, but as you said - in practice it's the same thing. Thanks for the correction.

    My point was that small businesses have enough ammunition to fight plastic on their own and do not need another piece of legislature (with unintended consequences).

  • Report this Comment On October 03, 2011, at 4:58 PM, rhealth wrote:

    Just opened a checking account at TD bank today. No fees if I maintain $100 balance. It may be a good business move for Citibank and others to screw over their personal account holders, but I'm not paying them $15 a month because they've already spent their bailout money or are hoarding it, shooting it into their veins or whatever. Where's my bailout?

  • Report this Comment On October 03, 2011, at 5:11 PM, Bert31 wrote:

    Bank of America is garbage. I remember when they began issuing credit cards to customers without social security numbers!!!! The day I heard that is the day I knew we were truly f'd.

  • Report this Comment On October 03, 2011, at 5:33 PM, WikiCPA wrote:

    It's news like this that makes me regret my BAC purchase but a fool should never forget their investment decision method.

    Is this fee enough to bring down Bank of America?

    <<surveys already show that only 11 percent of customers are planning to switch to credit cards, and a much larger percentage are planning to switch to paper checks, which would dramatically increase the costs to the bank (as well as the retailer).

    Another survey indicates that 75% of BofA customers have said they plan to switch banks. Previous studies have shown that 3/4ths of those who say they are going to switch banks eventually do. If BofA goes through with this, they could lose half of their depositors. Bank run, anyone?

    >>

    Is there a survey that shows how many people change their mind after realizing it is an industry-wide change, that if changing to another bank, has the same fees, won't people stay loyal to their bank? I'm new to this, but I just don't see this bringing down BAC, if anything it should help. All the activities to gain cash is seen as desperate measures to survive, but maybe this is just hard work by BAC to regain their share price?

    Is it possible that their could be a correction in BAC as all this negative media is misconstrued?

  • Report this Comment On October 03, 2011, at 5:44 PM, gmerton wrote:

    The rise in fees is not just to cover the cost of checking accounts. Consider the millions of dollars BOA has spent to settle lawsuits, and consider the potential many millions more that will inevitably be spent as various state AG's sue.

    Bottom line is if BOA had not engaged in rampant fraud (...they wouldn't be settling if they were innocent...) they'd have more capital to absorb the effects of the Durbin law.

  • Report this Comment On October 03, 2011, at 6:19 PM, isaquejr wrote:

    Banks borrow your money to raise more money, storage units don't borrow your stuff to get money.

  • Report this Comment On October 03, 2011, at 7:41 PM, racchole wrote:

    Thanks for clearing this up for us more-aware readers TMFHousel. Obviously most Americans have a problem placing the bank institutions into the greater picture of American economics and society.

  • Report this Comment On October 03, 2011, at 7:48 PM, peters46 wrote:

    syntheticzero has it right. Banks used to make over 90% of their money by the interest spread. Now less than 10% is from interest spread. I have had free checking accounts for 55 years, only one required a minimum, and that minimum was only to open the account. Most of these accounts seldom had over $1000, and most averaged in the low hundreds. I'm surprised no one mentioned that most (if not all) debit cards can be used as credit cards (just tell the clerk or hit the credit button). You can't get cash back that way, but I never wanted to.

    john p

  • Report this Comment On October 03, 2011, at 8:06 PM, TMFHousel wrote:

    << Most of these accounts seldom had over $1000, and most averaged in the low hundreds>>

    Bingo. So apply a 3% net interest spread, and you have, max, $30 a year in income. Compare that with $300 in annual overhead, and you see why banks need to charge.

    <<Banks used to make over 90% of their money by the interest spread. Now less than 10% is from interest spread.>>

    Over the past twelve months, BAC has generated $48 billion in net interest income, and $41 billion in non-interest income. So it's still more than half.

  • Report this Comment On October 03, 2011, at 9:44 PM, wjcoffman wrote:

    "According to a report by Marsh & McLennan, it costs banks between $250 and $300 a year to maintain a checking account" - Wonder what those costs are that total $250 to $300? Does it include the checks I write Wally-world where they're 'scanned' upon release to the cashier and then returned to me?

    I'd also be interested to know how much a mortgage or other loan costs a bank to maintain? Bet it's not the spread between the fed funds rate (?) and whatever interest rate they're charging.

    Even more entertaining to me anyway, is the escrow system whereby the lending institution can keep a certain amount of your money to pay your home loan associated bills. Our local credit union ran a loan "sale" and I asked to do my own escrow as part of the deal. They said sure and I jumped on it. I get to set aside my money and earn interest on my money and pay my bills. My mortgage company refused my request every time I asked.

  • Report this Comment On October 03, 2011, at 10:09 PM, momnurse999 wrote:

    I just changed to BOA and I like it. Suntrust had a problem with debiting my account over and over to pay another customers bills. Seems our acct numbers were similar. Talk about incompetent! As for the $5 I won't have to pay it because I was not like the rest of the world spending out of my mind and burying myself in debt. I will keep my free checking and free debit purchases. Happy new BOA customer. Call me crazy but its a lot better than Suntrust!!! Further, BOA is just one of the first, the other banks will follow.

  • Report this Comment On October 03, 2011, at 10:31 PM, dcfoolz wrote:

    I'm sorry, but the amount of these fees have very little relationship to the actual cost of providing the services. Bank fees are super-profitable. An analogy can be found at any fast food restaurant. The burger profits might be 30%, but the carbonated drink profits are multiple hundreds of percentage of the cost. The banks pays almost nothing for providing these services, but they are addicted to these easy ways of gouging their customers.

    Today I opened a checking account with a credit union that does not charge for debit card purchases. I wrote to BAC last Saturday to tell them I was offended by this new fee on debit card purchases and they would never get a penny of my business again.

    This fee was the last straw. This Fool article fails to acknowledge that BAC made horrible merger choices and BAC is using this latest fee increase to make up for their other failing business decisions.

  • Report this Comment On October 03, 2011, at 11:31 PM, FoolTheRest wrote:

    @TMFBreakerRob,

    HA! Rabble-rabble-rabble-rabble. It certainly seems that Morgan brings it out every time he speaks. I suppose you do not become an award-winning columnist by writing pieces everyone agrees with.

    @Morgan,

    Thanks for another insightful article. For better or worse, we will always find unintended consequences when regulators make decisions.

  • Report this Comment On October 03, 2011, at 11:51 PM, FK6280 wrote:

    It seems the real culprit of the unintended consequence is the US government. The ones who wrote the law that has changed the calculus around debit cards and banking services. If you don't like it pay the fee at the check cashing store or go to the issueing bank, then do things the old fashion way, pay cash.

  • Report this Comment On October 04, 2011, at 2:43 AM, TrumpII wrote:

    As a new small business owner, I was amazed that my credit card processing took 10% of my profit. This article is ridiculous. I don;t see how anyone can justify merchants paying what amounts to a corporate private tax. There is no competition so I can't go somewhere else. It's my MONEY. Stay away.

  • Report this Comment On October 04, 2011, at 8:51 AM, sgt1917 wrote:

    Thank a Liberal!

    Also, if you don't like the fees, simply use cash or check.

  • Report this Comment On October 04, 2011, at 10:05 AM, whereaminow wrote:

    Morgan!

    I heart you. I'm in 100% agreement with this article. This was predicted. They call them "unintended" consequences, but they should call them the predictable outcome of totalitarian edicts issued by ignoramuses (in this case, Ms. Warren are her band of crackpots.)

    David in California

  • Report this Comment On October 04, 2011, at 10:55 AM, mclaugph wrote:

    "<<But Bank of America is only going to waive fees for people with $20K or more in deposits --- truly absurd>>

    I'd like to see your reasoning for calling this absurd. "

    Given the unemployment rates, foreclosures, and people in economic peril, it's unlikely those hurt most by a $5 fee will have $20K in deposits...that's what I took from the comment, and I agree.

    That said, I resent the idea of being charged for allowing someone else to hold my money. As a WFC customer, I'll likely vote with my feet when those fees hit my state.

    My understanding was banks made money from loans, but $ from fees has been on the increase for years. I think the spirit of the article is spot on, but I disagree with some of the details in the article itself.

  • Report this Comment On October 04, 2011, at 11:14 AM, lehem wrote:

    A couple of points:

    If a bank had 100 accounts then it should cost $300X100 to operate or $30000. This sounds like one full time person to handle just 100 accounts. Why does nobody question these costs? It does not cost $300 per account. More to the point $5X12=$60 per year so it will not be replacing the full $300. Maybe small banks are the better deal because they are not so bloated that they need $300 per account to operate.

    On the percentage spread 3% is low for the money we are talking about. Banks are paying basically 0% for most of the money sitting in the account. Most interest bearing checking accounts have higher minimums. So how much % are they making? Even a new home loan is about 5% (nevermind the fees they charge on setting that up) but if your underwater or unable to refinance then the loan rate could easily be over 6%. For my math I would guess the spread to average better than 5%. How much if they loan it out as credit card debt? 12%-19%.

  • Report this Comment On October 04, 2011, at 11:31 AM, TMFHousel wrote:

    <<If a bank had 100 accounts then it should cost $300X100 to operate or $30000. This sounds like one full time person to handle just 100 accounts. Why does nobody question these costs? It does not cost $300 per account.>>

    How much do ATMs cost?

    How much does it cost to pay the armed cars to stock ATMs with cash?

    Does that one employee work at an office? Is there rent at the office? Does he use a computer?

    How much does it cost to send account statements?

    How much did the software used to generate account statements cost?

    It goes on and on. It's $250-$300 per account.

    <<On the percentage spread 3% is low for the money we are talking about. Banks are paying basically 0% for most of the money sitting in the account.>>

    And they're lending it back out for between 0-4%, risk-adjusted.

    <<For my math I would guess the spread to average better than 5%. How much if they loan it out as credit card debt? 12%-19%.>>

    Credit cards have a 12-19% interest rate because default rates are about as high. Most credit card divisions have been incredibly unprofitable for years.

  • Report this Comment On October 04, 2011, at 11:44 AM, TMFHousel wrote:

    <<For my math I would guess the spread to average better than 5%.>>

    Why guess? Last quarter, BofA's net interest margin was 2.58%. That's not a guess. That's what it was.

    http://investor.bankofamerica.com/phoenix.zhtml?c=71595&...

  • Report this Comment On October 04, 2011, at 12:15 PM, hrse wrote:

    I apologies for not reading every comment, and perhaps what I am going to say has already been said.

    I am not upset with these changes, but I left BoA a long time ago for a credit union. My credit union may institue these same changes for my account. But I know that there are dozens of charges and fees that BoA customers pay that I do not.

    Abuot SunTrust, I thought BoA did their card processing? So if BoA instituted the change it would be a small matter for SunTrust to do the same. I would guess the only real reason most banks are not announcing this change is that they do not have the capability to implement it right away. A change like this could take months.

  • Report this Comment On October 04, 2011, at 1:07 PM, geobabe54 wrote:

    I made the decision to leave BoA a few months ago, and for many reasons it's taking awhile to make the change. I'm convinced that they are only interested in customers who deposit or keep fairly large amounts in their accounts and that they are actively trying to get rid of the smaller account holders.

    Besides the charge on the debit card, BoA also charges a monthly maintenance fee on accounts that don't have a minimum $250 automatic deposit or maintain a balance of over $1500 in the account. My daughter is a student and doesn't make that much from her job.

    That on top of the 29% interest on one of my credit cards (that's gone, too), the incompetent online customer service and reduction in banking hours made start to look around. I have a mortgage with them, and apparently saves me from the $5 debit charge.

    I have been fed up with BoA for a long time, but the last 2 interactions with their customer service nailed the coffin. They take the money, roughly $6K yearly in the form of my mortage, and they don't lend it out.

    And now they want to charge me for accessing my money. Yea, right.

  • Report this Comment On October 04, 2011, at 2:21 PM, ArtKopp wrote:

    For a link to the bank I use and we BOTH get $25 referal and sign up bonus email me your email address and I will refer you. They will send you a link to click on and sign up.

    art_kopp@yahoo.com

    I use INGDIRECT online banking that has thousands of FREE ATMs at 7-11s & Walgreens. NO MINIMUM balance and NO debit card fees.

    I agree BAC is a greedy bank and always has been. They were the first to inact the $5 fee for cashing a check that is drawn off a BAC account if you the check casher did not have an account with BAC. Other banks were quick to follow suit and some charge as much as $8.

    Some banks like Wells Fargo is already charging a $3 debit card fee in select markets for test study purposes so in this case BAC will just be following others leads.

    I agree it is not a consumer friendly idea and have not used BAC since it bought out Nations Bank years ago however at least they are not charging the $5 debit card fee if only used at THEIR ATMs. So you can still access your money at no charge using a debit card. Only negative is now criminals can assume you are more likely to carry cash and if BAC and other banks really cared about their customers safety maybe they would reconsider.

    For a link to the bank I use and we BOTH get $25 referal and sign up bonus email me your email address and I will refer you. They will send you a link to click on and sign up.

    art_kopp@yahoo.com

    I use INGDIRECT online banking that has thousands of FREE ATMs at 7-11s & Walgreens. NO MINIMUM balance and NO debit card fees.

  • Report this Comment On October 04, 2011, at 2:24 PM, georacer wrote:

    The problem with this regulation is that it is revising contracts that merchants made with the banks. If these small merchants were being so hurt by the transaction fees they would simply just accept cash. The cost of the transaction is covered in the price of the cost of the product, I doubt my cup of coffee is going to be 50 cents cheaper because of the capping of fees. They accept credit cards because that is an additional way for people to buy their goods and services. This regulation will hurt BOA more then just the loss of revenue but as people leave the bank because of increases in fees. BOA will hemorrhage off a huge number of small accounts to online low cost checking that don't have the ovhead that the large banks do.

  • Report this Comment On October 04, 2011, at 2:46 PM, toastedseeds wrote:

    One question and a comment. Why is this fee considered an unintended consequence? The regulation serves a purpose in moving the cost of checking accounts from vendors to the user. The reason regulation was needed is because everyone uses plastic and it is death to vendors not to accept. Very similar to a monopoly. BofA has every right to institute any fee they think is best for their business. The only person responsible for this fee is a BofA customer that pays it.

    TS

  • Report this Comment On October 04, 2011, at 6:50 PM, justaluckyfool wrote:

    JIM LEHRER: ..." a lot of people who believe... the key to this from the very beginning was not the financial system... it was the housing problem.

    JIM LEHRER: ... until that is fixed, can the rest be fixed?

    HENRY PAULSON:... when you look at how long it's taken for these excesses to build up and for these home prices to appreciate to suddenly say, "Maybe government could push some button and make it all go away and solve the problem."...

    HENRY PAULSON:... Well, I have always said that at the heart of the problem is the housing correction. And until the biggest part of the price decline in houses is behind us, we will have stresses in the financial markets and in the economy." (excerpt from FOX interview.2009.)

    The government should step up to help the taxpayers and EVERY HOMEOWNER..Fix the housing market ; jobs will be created; deficits will be reduced.The problem is that the banks have to get the loans to real value,but they cannot do it.Millions of loans need fixing and the amount of money needed is astronomical!Bank of America alone has 4 million of them.

    TARP AND TALP were for more than $8 trillion dollars and the banks used that as chump change from their own personal cookie gar.

    A Real Jaw Dropper at the Federal Reserve a blog by US SENATOR BERNIE SANDERS.

    The Fed was forced to divulge ... emergency loans that until now were totally kept from public to make our financial institutions more responsive to the needs of ordinary Americans and small businesses.

    What have we learned so far from the disclosure of more than 21,000 transactions? We have learned that the $700 billion Wall Street bailout signed into law by President George W. Bush turned out to be pocket change compared to the trillions and trillions of dollars in near-zero interest loans and other financial arrangements the Federal Reserve doled out to every major financial institution in this country

    The Fed said that this bailout was necessary to prevent the world economy from going over a cliff. But three years after the start of the recession, millions of Americans remain unemployed and have lost their homes, life savings and ability to send their kids to college. Meanwhile, big banks and corporations have returned to making huge profits and paying their executives record-breaking compensation packages as if the financial crisis (I read criminal fraud) they started never happened.

    What this disclosure tells us, among many other things, is that despite this huge taxpayer bailout, the Fed did not make the appropriate demands on these institutions necessary to rebuild our economy and protect the needs of ordinary Americans.

    The four largest banks in this country (Bank of America, JP Morgan Chase, Wells Fargo, and Citigroup) issue half of all mortgages in this country. We now know that these banks received hundreds of billions from the Fed. How many Americans could have remained in their homes, if the Fed required these bailed-out banks to reduce mortgage payments as a condition of receiving these secret loans?

    We have begun to lift the veil of secrecy at one of most important agencies in our government. What we are seeing is the incredible power of a small number of people who have incredible conflicts of interest getting incredible help from the taxpayers of this country while ignoring the needs of the people.

    What have we learned so far from the disclosure of more than 21,000 transactions? We have learned that the $700 billion Wall Street bailout signed into law by President George W. Bush turned out to be pocket change compared to the trillions and trillions of dollars in near-zero interest loans and other financial arrangements the Federal Reserve doled out to every major financial institution in this country. Among those are Goldman Sachs, which received nearly $600 billion; Morgan Stanley, which received nearly $2 trillion; Citigroup, which received $1.8 trillion; Bear Stearns, which received nearly $1 trillion, and Merrill Lynch, which received some $1.5 trillion in short term loans from the Fed.

    Perhaps most surprising is the huge sum that went to bail out foreign private banks and corporations including two European megabanks -- Deutsche Bank and Credit Suisse -- which were the largest beneficiaries of the Fed's purchase of mortgage-backed securities.

    Deutsche Bank, a German lender, sold the Fed more than $290 billion worth of mortgage securities. Credit Suisse, a Swiss bank, sold the Fed more than $287 billion in mortgage bonds."

    ADD IT UP:OVER $8 TRILLION !

    CALL IT QE3. OR CALL IT PROVIDENCE,We can solve the problem..

    Money lent to the auto industry paid off;NOW DO IT FOR HOUSING.Jobs were created and GDP was increased,this was a real win/win.So where does that differ from the $8 trillions plus given to the banks?This money is not to be given to the foxes that are in the hen house.The banks have proven their greed and have proven to be untrustworthy.

    THE SOLUTION:

    THE FEDERAL BANK OF THE UNITED STATES OF AMERICA .

    Federal Bank USA will purchase ALL residential and commercial loans.The American people will be the lenders and no longer will they be the victims of greed.No longer will they allow the banks that they have entrusted with their money to use that money to make profits for themselves .Profits will be made by the people,of the people, for the people.

    Taxpayers bailout for Taxpayers by Taxpayers paying compounded interest to Taxpayers.

    These loans would provide trillions of dollars as TAXPAYER PROFIT! Bye-bye NATIONAL DEBT.

    State Banks are taxpayer owned and are for taxpayers to make and retain any profit.The Federal Reserve Bank as it stands now is a bank that is owned (shareholders) by other banks.This is the greatest banker fraud of all,and we know how Freddie and Fannie turned out.(We will get to them later).And because the Federal Reserve Bank is the bankers bank,they are using taxpayers dollars to HELP THEIR BANKS more than to help people.When the banks made federal guaranteed loans,the FEDS guaranteed the loans with taxpayer dollars.

    You have to read "North Dakota's economic "miracle" blog by Ellen Brown

    State Bank of ND ROE to taxpayers was 19% this year.

    More to follow.justaluckyfool.wordpress.com

  • Report this Comment On October 04, 2011, at 7:01 PM, justaluckyfool wrote:

    AUDIT BANK OF AMERICA!!

    That disclosure could result in FDIC receivership.

    JPMC and CITI could have their cronies at the Fedr Reserve support it to save their hides.

    But this time make it owned by the people,of the people and for the people.CREATE THE BANK OF THE UNITED STATES OF AMRICA. Let the profits being made become a supplement to income taxes.

    Sell the assets of BAC, (all but any loans) use the proceeds to pay off their secure holders.

    MODIFY their loans by making all loan 100% of real value with payments of 4% for 36 years (read 1/2 of rule 72) so that TAXPAYER MONEY WILL DOUBLE.

    www.justaluckyfool.wordpress.comThe taxpayers win because the housing prices are firmed and tax revenue increases without a rate increase.With millions of homeowners safely in their shelters,confidence will be restored,new lending and jobs. Sec't Treasury-We won't know how much money will will lose till the housing prices are stabilized.

    STOP FORECLOSURES AND SHORT SALES.

    Let them stay in their homes,

    Let them be able to afford it,

    Let them be able to manage it.

    No cost to the taxpayers.100% including interest is paid back.

    THIS IS THE REAL AMERICAN DREAM.

    SHELTER THAT COULD BE AFFORDABLE!

    Turn this challenge into a greater good for all.Re-establishing "CREDARE" .Faith in the American people and home values.

    This is a fast and great solution to the problem and it allows for time

    to fix the blame and to do what is necessary for future prevention.

    We simply must get off the idea that we should only help "the good" people and leave the "reckless" ones to their own ends. Whether the foreclosed house next to you was owned by a good guy or a reckless flipper doesn't matter.. your home value goes down either way due to the foreclosure.

    PLEASE,

    PLEASE,

    Change it,

    Challenge it

    or

    Endorse It

    www.justaluckyfool.wordpress.com

  • Report this Comment On October 04, 2011, at 7:11 PM, TMFKopp wrote:

    @TMFMorgan

    Check something called the constitutioin FOOL! Life liberty and the availability of free checking. STANK of America is illegal and insolvent and also they're branches smell like feet. They cheated there way to BILLIONS of taxpayer profits and its TIME to take that back.................. ready? NOW.

    Matt

  • Report this Comment On October 04, 2011, at 7:37 PM, wkrick wrote:

    @TMFHousel

    "It costs $250-$300 a year in overhead to maintain a checking account."

    I call bullsh!t on this statement.

    Most "free" checking accounts make you buy your own checks, charge you extra for mailed paper statements, and offer you no interest on your balance.

    So where does all the "overhead" come from? Physically processing the checks? I seriously doubt it. It only takes seconds to manually punch in a deposit and bank tellers really aren't paid that much, so their time is cheap. Furthermore, I'm willing to bet that they have pretty decent OCR technology these days so it might not even require a teller most of the time.

    But for the heck of it, let's do some back-of-the-envelope math...

    According to glassdoor.com, the average salary for a BofA teller is $22,541, which works out to about $10 an hour.

    $300 a year is $25 a month.

    If you do the math, that works out to 2.5 hours a month, per checking account in human labor, which is absurdly high, so the overhead can't possibly be coming from there.

    How about the cost of computers to store the electronic accounts in a database?

    Well, computer hardware is stupidly cheap these days and economies of scale make the cost per user negligible when it comes to IT support and electricity costs, so that can't possibly be the source for the overhead either.

    I can't think of anywhere that there can be a legitimate $25 a month overhead cost for a checking account.

  • Report this Comment On October 05, 2011, at 3:38 PM, MaxTheTerrible wrote:

    @ georacer

    "This regulation will hurt BOA more then just the loss of revenue but as people leave the bank because of increases in fees. BOA will hemorrhage off a huge number of small accounts to online low cost checking..."

    I actually think it's the opposite. The closure of "a huge number of small accounts" -- small being the key word here -- should actually help BAC, as these accounts are the ones that cost more to maintain or are unprofitable.

    Cheers!

  • Report this Comment On October 05, 2011, at 3:47 PM, TMFHousel wrote:

    ^ Exactly.

  • Report this Comment On October 07, 2011, at 7:55 AM, zgriner wrote:

    The problem with all these fees is that they are invisible to consumers and merchants are not allowed to give discounts for cash or add fees for credit/debit cards. Nor are merchants allowed to set minimums to use these cards.

  • Report this Comment On October 07, 2011, at 1:49 PM, robwg wrote:

    Last year BAC doubled its charges for a basic checing account (to $8.00/mo). Now they want to add $5.00/mo for having the temerity to use the debit card they include with that account. They also stopped providing paper statements and cancelled check copies (you have to pay for a scanned copy).

    It is mendacious and greedy of them to "justify" this because their take on swipe fees was capped at a little more than 50% of their average take (note that they are now also going after the cap as a minimum for all transactions, which will likely double their actual gross, sin many chewck card users are in the habit of making small purchases on them).

  • Report this Comment On October 07, 2011, at 1:54 PM, TMFHousel wrote:

    <<It is mendacious and greedy of them to "justify" this because their take on swipe fees was capped at a little more than 50% of their average take>>

    Mendacious and greedy to cover costs? Is it also mendacious and greedy that Toyota charges $15,000 for a Corolla? What kind of world is it where covering costs counts as greed? And why do so many people feel entitled to free checking? This debate really is fascinating.

  • Report this Comment On October 07, 2011, at 1:56 PM, TMFHousel wrote:

    <<note that they are now also going after the cap as a minimum for all transactions, which will likely double their actual gross>>

    I'd like to see the math on that. The average transaction is $38 ... the cap on small-ticket items won't come remotely close to doubling the net.

  • Report this Comment On October 07, 2011, at 6:10 PM, MKArch wrote:

    Trecer,

    Who is holding a gun to the poor merchants heads and forcing them to accept debit card payments? Do you really think the one's who do are not building the cost into their pricing? Do you really think they are passing the new savings on to their customers now? I'm pissed off about the price of commodities driving up the price of everything I buy. Maybe Obama and Durbin can put caps on the price of commodities while they are at it. Then again why stop there put caps on the price of everything (except for architect fees).

  • Report this Comment On October 07, 2011, at 6:13 PM, TomRB wrote:

    While I have disdain for the banking industry, setting limits on business fees should not be done by the government. It seems it is ok to charge 75% intrest on credit, or 1.50 for atms, but not to charge .41 on debit card transactions. If the govenment focused on the real problem which is allowing the banks to get too big and reducing competition maybe the free market would be able to work. It is much harder to collude when there are 1000 businesses instead of 6. I would rather have a lot of small competitive banks then the too big to fail mess that we have

  • Report this Comment On October 07, 2011, at 6:29 PM, OrlandoBob wrote:

    For every action there is a reaction. It's odd that this administration hasn't figured out how to maintain a balance that is fair and equitable. They look at big business as the enemy and they forget where the jobs that they seek come from. The key to operating a government is keeping in mind that a balance is required. Yes, things did get out of balance with the mortgage mess but that's the area to address. Who's idea was it to make housing available to everyone regardless of income or ability to repay the loans? It's that mentality that lead people to get greedy and that is what needs to be fixed. A substantial down payment makes the buyer think twice about committing hard earned money before buying property. Without such a down payment you open the door to the mortgage collapse that we just experienced.

    Not everyone can afford a home and not everyone should own one. The cost of owning a home is more than a mortgage payment. There is the upkeep and monthly expenses that should be considered as well. There is nothing wrong with the old fashioned way of home ownership where one saves up to own a home, and that should include extra funds for unexpected expenses or an emergency fund.

    It's easy to dream about owning a home , getting married or having a baby. The smart person plans for these things and sets funds aside to cover unexpected costs. There is nothing wrong with dreaming, but one should expect the unexpected. I too have been guilty of dreaming only about the good things, but I have come to learn that it is wise to prepare and think about the things that could go wrong. Today, you have to consider what would happen if you or your spouse lost their job? What happens if you or your spouse are in an accident and can't work? This is not negative thinking, it's planning and understanding what is possible. It's also the same things that one thinks about when they invest in the stock market. It's easy to dream about being rich, but are you prepared for the down days of the market? Are you disciplined enough to hold on through the down days? Are you willing to invest more money into a company that you believe in when it continues to go lower and lower? Are you wise enough to determine when to sell? Investors don't have a crystal ball that gives them the answers. They can only research their companies Income statements and balance sheets. Sometimes it is as simple as knowing a company is strong but going through a down cycle and having the faith an intestinal fortitude to hold on for the day of recovery.

    The wise person prepares and considers the good and bad when making a big decision. Uncle Roy, on The Mickey Mouse Club, used to say: "Make Sure You're Right And Then Go Ahead."

  • Report this Comment On October 07, 2011, at 10:34 PM, ManagingIt wrote:

    In reading this article I can see some points however based on recent personal experience with BofA I can say that while fees on checking accounts may be justified I question the ethics of how they are managed. I opened a BofA checking acct in 2006 for use durin a 4 month training class and I kept it becuse I really liked their online banking system. I even transfered an IRA and created a brokerage account through thei online presence. All these accounts were linked through single sign on. Recently I decided to get rid of the chking account because of the fees and availability of full service ATM's. During the closing of the account I was told these fees could be waived because of the ira balance was high enough. I asked them if that was the case why wasn't it automatically done? I was told that they had to set it up upon request. What the balance requirement is I am not sure, however I question the ethics of requiring their customer to learn/know they can be exempted and request it before they will waive the fee. how many of you would like finding out that you could be exempted from the fee you have been paying by requesting it. Do you want to do business with a company that chage you additional fees because you do not want to be come an expert in their internal policies.

    In closing I can understand and accept fees however, I cannot accept complicated fee structures that I have understand in order to tell them i am entitled to an exemption before I get it.

  • Report this Comment On October 08, 2011, at 10:22 AM, Varlot wrote:

    Regarding banks versus credit unions, it helps banks that credit unions are required by law to maintain FOM (Field of Membership) qualifications. When it's possible to get a law passed that effectively limits the customer base to which a business can offer its services, that tends to put a damper on the notion of 'competition'.

    But on the other hand, it must also be said that, due to their status as non-profits, credit unions are exempt from many federal and state taxes, which gives them an advantage in terms of lower costs while competing with banks for those customers the laws do allow them to solicit. Which is why I would never consider a bank, either as a customer or as an investor. If you have to lobby the government to pass laws to limit your competition versus winning market share by providing superior service, then - fair or not - there's a problem with your business model.

  • Report this Comment On October 08, 2011, at 11:44 AM, wolfman225 wrote:

    Congratulations, Morgan on spawning another lively and entertaining debate! I don't always share your opinions (I think we're looking at similar things from divergent viewpoints, sometimes), but I think you've nailed this one.

    In one of your comments, you asked--

    "What kind of world is it where covering costs counts as greed? And why do so many people feel entitled to free checking?"

    I think you answered your own question. It's the entitlement mentality that has been fostered in our society over the last few decades that has caused things that were initially introduced as conveniences to become regarded as necessities. People are reacting to the new fees almost as if they were violations of their civil right to free bank services.

    You're right. It is a fascinating discussion.

  • Report this Comment On October 08, 2011, at 1:50 PM, jcrschroed wrote:

    I'm not a fan of what the banks have done but at least they are now being open. I guess with 60-70 billion cash on hand, apple has been charging a little extra for their products also..

  • Report this Comment On October 08, 2011, at 1:55 PM, Johnnicash wrote:

    This is the most ignorant article I have ever read on Fool dot com

  • Report this Comment On October 09, 2011, at 11:35 PM, lovesstocks2 wrote:

    The idea that a checking account costs $250-300 to maintain is beyond ridiculous and it demonstrates how out of hand the costs of the big money banks have gotten. We probably should have let them all fail the last time around and got rid of this problem once and for all. The far greater problem is the trading department at a lot of these banks, that makes money when times are good and then loses money at the most inopportune times. Its supposed to be separate but........ The author's problem is that he believes everything he reads without verifying and checking. Bank of America is in a big hole and needs money badly from anywhere. It has bloated costs and is well behind the competition in a number of key areas that have forced it to go the value added route. Frankly, its time to cut this bank loose and let it swim by itself., its suckered enough tax payer money.

    The fool even believes that Merrill Lynch is making money, even though Merrill Lynch is the target of at least one $20 billion lawsuit.

    If there was ever a bank that engaged in creative legal accounting, this bank was it. This mess is not over by a long shot,

    Warren Buffett could have made a mistake here.

  • Report this Comment On October 10, 2011, at 12:23 AM, SkepticI wrote:

    I am really regretful that I took so long to read this exchange. hilarious. For a very long time now BofA has run a very simple business badly, driven customers away, squandered shareholder wealth and generally punished its supporters- aka customers, shareholders, employees. This continues to this day. Anyone who argues for such fees in the face of scads of competition with free and better services must be insane. Anyone who takes it and is too lazy to research and move on deserves what they get.

    I made some pretty good money shorting them (which I almost never do) a few months back. Looks like a re-run to me. Same management philosophy, same result. I was just SURE that most managements learned the Enron lesson years ago: Bankrupting your customers is NOT a long term business strategy..... Neither is annoying the customers whose deposits and business you desperately need

  • Report this Comment On October 10, 2011, at 3:28 AM, jrj90620 wrote:

    It's their business.BofA can do whatever they want and I can choose whether to be a customer.What's the problem?

  • Report this Comment On October 10, 2011, at 4:01 PM, ramirez8maui wrote:

    "That turns the fee structure on small-ticket items upside down. For a $2 transaction, the old rules generated a $0.07 interchange fee. Today, it will be $0.22."

    So what Morgan is saying is:

    The banks are going to get three times more on interchange fees and that's why the need to add a fee, so that they can hire someone to count all that extra income.

  • Report this Comment On October 10, 2011, at 6:25 PM, hjg0989 wrote:

    I think this article is absurd to defend BOA (and the other big banks). This new fee being charged is to replace revenue lost due to new legislation. The legislation was put in place to stop price gouging. In otherwords, banks have been bleeding consumers (you heard it here first.)

    Get smart and quit using these large banks. Use credit unions (non-profits) and regional banks.

    Everytime a customer leaves BOA, an angel gets its wings.

  • Report this Comment On October 10, 2011, at 7:12 PM, gregconnor wrote:

    This is what happens when you mess with the free market. The banks told regulators that restricting their fees would prevent them from covering their costs and something would have to give. If they can't charge the merchant, who's getting the primary value, enough, then they are forced to charge the consumer to run a viable business. I'm not sure why regulators couldn't anticipate this.

    What will be interesting is what happens to the non-bank money movement and deposits that occur - will PayPal be forced to reduce its fees too (after all, it relies on the same networks the banks do...)? PayPal seems to have escaped government regulators so far (similar to Amazon and sales tax) - what makes them different? Will the government insure the money kept with these institutions in the same way? Will they force them to comply with miles of red tape (as they do banks) in order to participate in the market? Look at what happened to online poker players who kept their money with the company as if it were a bank account.

    The beauty of a free market is everyone has a choice. You don't like the fees as a consumer - go to a credit union or put your money under a mattress. You don't like your fees as a small business - stop taking credit and debit cards. The government should stay out of the way and let the market sort it out rather than interfering (I include the bailout as a method of interference here!).

  • Report this Comment On October 10, 2011, at 11:02 PM, zgriner wrote:

    To every poster defending BoA's actions, how do you know anything these lying banks claim is true??

    It's true that businesses need to make a profit, but how much profit is BoA making?? And at what risk??

    Free checking has been around now for over 30 years. Where have banks been making their money all the while?? Banks see suckers and they want free rein to squeeze them dry.

    I've been amazed at the insanity of people that keep maintaining a credit card balance, all the while whining how the interest and fees are killing them, as if borrowing on a credit card is a god-given right!

    How about the sheer stupidity of people that use debit cards to buy every thing, but have no clue what their balance is, and are amazed at the number of overdraw fees they're assessed. I realize that banks set things up to help people fail, but to keep doing the same stupid thing and expect a different result is more insanity!

    Yes, I've been caught and been assessed fees for my own stupidity and I own up to it. I've jumped right in with my eyes wide-open and I have only myself to blame.

    If you don't like what your bank is doing - do the capitalist thing and vote with your dollars. Move your account.

  • Report this Comment On October 10, 2011, at 11:11 PM, TMFHousel wrote:

    <<It's true that businesses need to make a profit, but how much profit is BoA making?? And at what risk??>>

    They've lost about $18 billion over the past year. So no profit, to be exact.

    http://finance.yahoo.com/q/is?s=BAC

  • Report this Comment On October 10, 2011, at 11:12 PM, TMFHousel wrote:

    <<The banks are going to get three times more on interchange fees and that's why the need to add a fee, so that they can hire someone to count all that extra income."

    As the article states, it's only on small purchases that interchange rises. Total interchange is still expected to fall by tends of billions.

  • Report this Comment On October 11, 2011, at 9:19 PM, gregconnor wrote:

    @zgriner,

    I cannot "know" what BOA says about debit interchange fees and their impact on profitability, but it's pretty clear there is a substantial (billions) impact on their business and it fundamentally challenges them to find value where none may exist (debit card transactions for consumers - no one on this thread is willing to pay to use their own money, but merchants have been "happily" - no one forced them - paying to accept plastic for years).

    The fact is that businesses have been willing to pay these fees because they make more money by accepting plastic. The government has now regulated the banks so they can't charge businesses sufficiently for this value. Apart from fighting this regulation, banks have a choice - they can stop offering the service or they can continue offering the service and figure out how to price it differently and/or change the cost structure. This is clearly uncharted territory - whether consumers see enough value to pay a monthly fee for using a debit card. My guess is no - that is why banks charged businesses to begin with. It remains to be seen what will happen given this artificial restriction in pricing the government has placed on banks, particularly when the restriction is on a subset of banks (smaller banks/credit unions can still charge the original debit interchange). Not to mention the legion of non-banks, like PayPal and others, that are not subject to the same rules despite using the same systems - it's just wacky! (Remind me why Paypal can charge 2.7% when they are using the ACH system to pull money (basically for free) out of a customer's bank account (the cost of which is borne by a bank))...

    Back to your original point - whether BOA is lying is irrelevant. It's their business (literally). If you don't like it, you don't need to do business with them - they do not have a monopoly. If small businesses don't like it, they don't need to do business with them. The only argument against this (and it's a reasonable one, but I disagree with it) is that BOA took bailout money (and they needed it - as opposed to other banks that were forced to take it so that the needy banks wouldn't endure even more risk at being called out as in financial trouble). If we allowed banks to fail, we wouldn't be in this moral quandary, and it's unclear whether we'd be better or worse (likely) off financially as a nation. However, we bailed them out, so we must live with the consequences. But if we keep holding banks to this standard of having to justify every move they make to earn a profit, we will have effectively socialized the banking system. While there may be some benefits to this, I think they are far outweighed by those coming from a free market system.

    And to your other point, we've had free checking for quite some time now because banks have been able to charge fees, which often make up the majority of their profit - overdrafts, interchange, etc. The government has cracked down on these fees, so banks need to replace the revenue in order to pay for the cost structure that supports these products. If the government won't let them charge fees...well, then, free checking is going to be much harder to find - only for the people with lots of money where the float banks make on balances will make up for waiving an account fee.

  • Report this Comment On October 14, 2011, at 1:38 PM, owen14 wrote:

    PNC is not charging the debit card fee. So what are the other banks' excuses?

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