BofA to Charge $5 Monthly Fee for Debit-Card Usage - Wall Street Journal

NEW YORK—Bank of America Corp. plans to charge a $5 monthly fee for its debit-card users, joining a number of other banks that are pressing their customers to help recover lost revenue from new regulations.
Bank of America Corp. plans to charge customers a $5 monthly fee for making debit card purchases starting next year. Andrew R. Johnson joins the PM Hub to explain.
The largest U.S. bank by assets, Bank of America on Thursday said it will begin charging many of its nationwide checking account customers $5 each billing cycle they use their debit card to make a purchase. The fee, set to kick in early next year, will apply to its standard accounts but won't apply to most of its premium accounts targeted at mass-affluent customers. The fee also will not be triggered by transactions made at automated teller machines.
Bank of America and other debit-card issuers, including J.P. Morgan Chase & Co., Wells Fargo & Co. and Regions Financial Corp., are trying to offset an estimated $6.6 billion annual revenue hit stemming from new limits on so-called debit-card swipe fees.
The limits, finalized by the Federal Reserve Board in June, take effect Saturday and will reduce the amount of money merchants pay banks to 24 cents per transaction from a current average of 44 cents. Bank of America has said it expects the caps to erase $2 billion in revenue annually.
"The economics of offering a debit card have changed with recent regulations," a spokeswoman for Bank of America said in a statement Thursday.
The fee will apply to various consumer checking accounts but will not apply to customers in certain premium accounts, according to a memo sent to the bank's executives Thursday. Customers will pay the fee during any billing cycle in which they use their debit card to make a purchase.
"This new fee allows us to continue to offer the convenience of a debit card with the full range of added features customers have come to expect," including fraud protection and monitoring, special savings programs and other services, the bank's memo said.
The addition of fees is not a surprise given the amount of revenue that is on the line for Bank of America and other banks with a large number of debit-card customers, said Brian Riley, a senior research director of bank cards at TowerGroup.
"Bank of America has a real challenge," Mr. Riley said. "They have to solve" how to reduce revenue losses.
Bank of America customers are projected to make $260 billion in debit-card purchases this year, according to Mr. Riley's research based on data from card issuers and Nilson Report.
Alison Miller, a Bank of America customer in West Windsor, N.J., said she would consider changing banks because of the new fee.
"It's just another way of gouging the customer," said Ms. Miller, 65 years old, who uses her debit card several times a week.
While Bank of America is not the first bank to roll out plans to charge customers card-usage fees, its fee is higher than what most other banks are testing or planning to charge.
Wells Fargo said it will charge a $3 fee for debit and ATM card customers in Nevada, Washington, Oregon, New Mexico and Georgia starting Oct. 14. Like Bank of America's, Wells Fargo's fee applies when a customer makes a purchase with the cards and not ATM transactions.
Getty Images The fee won't apply to customers in certain premium accounts.
The San Francisco bank has said it expects to lose $250 million each quarter from the new caps on swipe fees, which stem from a provision called the Durbin amendment in last year's Dodd-Frank financial overhaul legislation.
Wells Fargo is charging the fee as part of a pilot but has not determined whether it will roll it out to all customers, spokeswoman Lisa Westermann said Thursday.
Customer responses to Wells Fargo's announcement has varied, Ms. Westermann said.
"Obviously nobody likes fees," she said. "Some people are going to be unhappy...but you also have other people that understand that" there is a "cost to provide debit-card services."
J.P. Morgan has been testing a $3 fee in a small market in Wisconsin since February. Regions Financial and SunTrust Banks Inc. also have added monthly fees for some debit-card customers.
Citigroup Inc. said last week it was raising fees on certain checking accounts but would not charge fees for using debit cards.
Trish Wexler, a spokeswoman for the Electronic Payments Coalition, a trade group that represents Visa Inc., MasterCard Inc. and several large banks, said the new fees are "unintended consequences that have come up as a result" of the Durbin amendment.
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