Bank of America blinked on Tuesday. The bank has canceled its plans to add a monthly $5 fee for debit card usage. The fee, announced in late September, was widely panned by consumer groups. It also created a backlash from customers who vowed they'd dump the bank for one that didn't have a fee.
The bank, based in Charlotte, N.C., announced its about-face by issuing a terse press release on its website citing "customers' voices" for the change of heart.
"In response to customer feedback and the changing competitive marketplace, Bank of America no longer intends to implement a debit usage fee," the statement says. The move comes as a huge relief to many in the region. Bank of America is the second-largest bank in the St. Louis area, trailing only Minneapolis-based U.S. Bank.
As of June 30, Bank of America had about 60 branches locally and it grew its market share of local deposits to 12.4 percent at the end of June, up from 12 percent in mid-2010. Anne Pace, a spokeswoman for Bank of America, declined to say whether the company experienced a spike in account closures since announcing plans for the debit card fee.
But customers' threats to dump Bank of America should not come as a surprise, given the down economy, said St. Louis University finance professor Mike Alderson. Bank of America's reversal is "reminiscent of what often happens in the airline industry where an airline increases fares," he said. "It only sticks if competitors go along with it."
Despite its heft as the country's second-largest bank, Bank of America faced increasing pressure to reverse itself after national competitors backpedaled on imposing similar debit card fees. Last week, JPMorgan Chase & Co. and Wells Fargo & Co. canceled tests of similar debit card fees. On Monday, Regions Bank and SunTrust Bank both announced they were reversing course on debit card fees.
Regions Bank, based in Birmingham, Ala., is the fourth-largest retail bank in the St. Louis area. It said it would refund the $4 fee to any customer who paid it. Atlanta-based SunTrust canceled its plans to roll out a monthly debit card fee, which was set to go into effect this week. The quick reversal by the banks based on the outcry of customers should be viewed as a positive sign, said Joe Stieven, president of Stieven Capital Advisors in St. Louis and a longtime bank analyst. "As Americans, it should remind us of the idea that capitalism works," he said. "The free market is working."
Still, the banking industry's retreat from a debit card fee doesn't mean customers can escape higher fees elsewhere. The industry continues to seek other fees and revenue sources after regulators sharply lowered the amount that banks can charge for debit card transactions. "They have to," Alderson said. "You can't provide banking services at zero costs."This past spring, for example, Bank of America raised the monthly fee on its basic checking account to $12, from $8.95.
Bank of America is also testing a new menu of checking accounts with monthly fees ranging from $6 to $25 in Arizona, Georgia and Massachusetts. Bank of America's Pace said the pilot program is seeing "good results" and that the bank plans to move ahead with its rollout sometime next year. Other, smaller fees may be nicking away at customer accounts as well. In September, the bank instituted a $5 fee to replace debit cards, with overnight rush delivery costing $20. Both services had previously been free. The unwelcome changes for consumers aren't limited to Bank of America.
Chase this year also doubled the fee on its basic checking account to $12 a month. But the bank says it will end a test in Georgia of a basic checking account that charged a $15 monthly fee. While many consumers reluctantly accept higher account fees, an additional fee just for using a debit card became a lightning rod for bank critics. "Banks are everyone's whipping boy," Alderson said. The Associated Press contributed to this report.