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SALT LAKE CITY — The recent decision by some large banks to charge fees for using debit cards may prompt customers to make a switch to smaller, local institutions.
Late last month, Bank of America announced it would charge customers a monthly $5 fee beginning early next year for using its bank-issued debit cards. The decision was met with criticism by some, including customers who were irked at having to pay to use their own money.
(Customers) are saying, 'I shouldn't have to pay five dollars a month to use my debit card to make (a) purchase.'
–Bruce Bryan, Heritage West Credit Union
"What I would like to see is (people) switching from (big banks) to local banks and credit unions," said Salt Lake resident Robby Woodleff. The additional fees would hurt low-income consumers the most, he said, especially people like himself who make close to minimum wage.
In the wake of the announcement, a number of Utah credit unions have experienced a jump in membership.
"We've seen a steady increase over the last week to 10 days," said Bruce Bryan, regional president of Heritage West Credit Union. "The consumers that come in have stated the reason is they want a better deal than the banks who charge (debit card fees).
"They are saying, 'I shouldn't have to pay five dollars a month to use my debit card to make (a) purchase.'"
The recently enacted federal regulations impact institutions with assets greater than $10 billion, while smaller local banks or credit unions would be unaffected.
New federal rules will cap the amount large banks can charge merchants at about 24 cents per transaction, down from an average of 44 cents previously.
Monthly debit card fees for 5 largest banks
| Bank | Fee | enactment date | area |
|---|---|---|---|
| Bank of America | $5 | Jan. 2012 | nationwide |
| Wells Fargo | $3 | in effect | select markets |
| JPMorgan Chase | $3 | in effect | select markets |
| Citigroup | no fee | -- | -- |
| U.S. Bank | no fee | -- | -- |
The Bank of America announcement followed tests by Wells Fargo and Chase for $3 monthly fees for debit cards in some markets.
Other banks have begun charging for basic checking and many banks have sharply restricted their rewards programs for debit cards.
Bank of America said the fee would apply only when customers use their debit cards for purchases in a certain month. The fee would not apply if the card was used only to access ATMs, and it would not apply for premium customers who keep high balances.
Debit fees hit particularly hard because banks have spent the past decade encouraging their customers to go for the ease of the cards, which deduct purchases immediately from a checking or savings account.
In 1995, debit cards accounted for only 1 percent of the transactions when people pulled a card out of their wallet to pay for something. Credit cards made up the rest.
Debit cards grew steadily, hitting 50 percent in 2006. Today, there are more than 530 million cards in use nationwide with two out of every three card transactions being debit, according to a Nilson Report — which tracks the card industry.
The president of the Utah Bankers Association criticized the legislation that prompted the fee in the first place, saying it was fundamentally inappropriate and gives big box stores a distinct economic advantage at the expense of large financial institutions.
"Congress took billions of dollars from a few of the largest banks and gave that money to WalMart, Target, Best Buy and these other big retailers," Howard Headlee said. "It was Washington, D.C., as its worst."
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Written by Jasen Lee with contributions from John Daley.
