Bank's Debit Card Fee Fiasco May Be Sobering Lesson For Businesses

While Occupy Wall Street protesters have railed against the excesses of “the Street” for weeks to little effect, it was consumers who quietly scored a rare but major victory over Wall Street last week.

Bank of America announced that $5 monthly debit card fee in late September, in large part, to keep Wall Street happy. New rules limiting interchange, or “swipe” fees, figured to severely cut into banks' revenue. Large, publicly-traded companies simply cannot eat large reductions in revenue without negatively affecting their stock price.  Banks must also meet federal liquidity requirements.

The $5 monthly fee for customers who used their debit cards to make purchases was designed to make up the lost revenue. Assuming the average customer made 25 debit card purchases per month, Bank of America customers would make up the revenue the bank previously collected from merchants.

One fee too many

The fee, however, proved to be just one too many for beleaguered consumers and an exodus to small community banks and credit unions began in earnest. At the end of last week, the Credit Union National Association reported credit unions had gained 650,000 new members since Bank of America announced the fee on September 29. That didn't count the consumers who waited until Saturday's grassroots National Bank Transfer Day to move their accounts.

After other major banks flinched and announced that, after careful consideration and study, they had decided not to institute a debit card fee, Bank of America announced it would not impose the fee after all. The bank said it made the decision after considering the opposition from its customers.

In an article entitled “Why Bank of America Really Killed Its Debit Card Fee,” Seth Fiegerman of the financial website TheStreet.com, said the bank was actually concerned the move was going to cost it too many of its customers.

Little fear of consumers

“After years of being able to increase fees with little fear that customers would jump ship, the big banks finally had a reason to cave to consumer demands, perhaps most of all for Bank of America,” Fiegerman wrote.

Fiegerman cites a survey released last week that found Bank of America could lose as many as 60 percent of its customers because of the debit card fee.

Going forward, what does all this mean for consumers and what does it mean for businesses? While there has always been a certain tension between consumers and businesses, old fashioned business practices have usually come down to trying to please the customer, so that they will remain a customer.

In recent years, however, it has seemed the prevailing philosophy, especially among large, publicly traded companies, is one focused solely on the bottom line. Consumers could be abused, when necessary, and while some would be lost, it was simply collateral damage.

Pure commerce

What happened last week was commerce in its purest form. A business announced a new set of terms and customers replied, “no thanks, we'll take our business elsewhere.” Small banks and credit unions responded with a strong marketing push, welcoming the disaffected consumers. Isn't that how capitalism is supposed to work?

It will be interesting to see if Bank of America and the consumer wrath it unleashed may finally serve as a wake-up call for both businesses and consumers. Businesses may rediscover the virtue of old-fashioned business practices as a model for success. Consumers may learn they have more power over Wall Street than they thought.