Bank Greets Swipe Fee Rule With Debit Card Fee

The Federal Reserve's new “swipe fee” rule, expected to significantly cut into bank profits, takes effect tomorrow, and at least one bank has already revealed plans to recoup some of its losses.

Bank of America says it will impose a $5 a month charge on customers who have a debit card and use it to make a purchase, as nearly all do. They aren't alone. Wells Fargo and Chase are testing similar fees while Region's Financial and SunTrust are also adopting debit card fees.

The banks hope the fees help offset expected losses from the new rule, known as the “Durbin Amendment,” which lowers debit card swipe fees charged merchants from 44 cents to 24 cents per transaction.

$6 billion loss in revenue

In June, the Fed adopted the rule which takes effect tomorrow. According to industry estimates, the change could cost banks more than $6 billion a year. Banks are still trying to make up for the more than $5 billion loss of overdraft fees.

Those fees have dropped after the Fed adopted a rule requiring bank customers to “opt-in” to the so-called overdraft protection, under which banks honored all purchases that overdrew customers' accounts, but charged a hefty fee for the service.

Banks and retailers waged a fierce lobbying war earlier this year as Congress debated what to do about the swipe fee. Retailers claimed it was excessive and resulted in higher prices for consumers. Banks scoffed at the notion that large retailers would pass the savings from a reduced swipe fee to consumers.

In the end, the retailers won, with Congress slashing the fee to 11 cents per transaction, but leaving it up to the Fed to adjust it. The Fed compromised, adjusting the new fee to 24 cents.

Criticism of Bank of America

Retailers were also quick to pounce on Bank of America's announcement of the debit card fee. The Retail Industry Leaders Association (RILA) charged Bank of America and other large banks had been imposing hidden fees on consumers for years. Now, the group said, the fees are in the open.

“Swipe fee reform will rein in these fees, increase transparency and allow consumers to see the costs associated with the various payment options and make decisions accordingly,” said Katherine Lugar, executive vice president for public affairs at RILA.

She cited Federal Reserve data that she said showed big banks collect a profit of 1100 percent every time a debit card is swiped.

'Explosion' of fees

“These fees have exploded over the past decade and last year cost merchants nationwide nearly $20 billion,” she said.

Sen. Richard Durbin (D-IL), who authored the swipe fee legislation, also weighed in on the new Bank of America debit card fee.

"After years of raking in excess profits off an unfair and anti-competitive interchange system, Bank of America is trying to find new ways to pad their profits by sticking it to its customers,” Durbin said. It’s overt, unfair and I hope their customers have the final say.”