The Tennessean

Consumer Anger Mounts Over Debit Card Charges

Customers ponder switch to escape debit card charges

The Tennessean — Tuesday, September 27, 2011

Written by
Bobby Allyn | The Tennessean

Rachel Paul was a Regions Bank customer since moving to Nashville eight years ago. But when the Alabama-based bank recently announced monthly debit card fees, she decided to close her accounts there and switch to another bank.

"I mostly use my credit card or raw cash to buy things, so when I heard about the fees, I thought that was enough," the 41-year-old Paul said.

Regions, SunTrust and First Tennessee banks are among the first in Middle Tennessee to unveil monthly checking account fees as regulations threaten to slice bank profits from debit cards.

Some customers are responding by switching primary banks to avoid fee increases on their accounts, which start this month or with October bank statements.

SunTrust Bank will charge a $5-a-month fee for debit card purchases, and Regions Bank will charge a $4-a-month fee for debit card purchases (ATM withdrawals and deposits are still free).

"I have always learned to budget. The new fees would have made this more difficult," said Drew Hollowell, 30, who recently closed his Regions checking account, opting for one at the smaller Avenue Bank.

Paul and Hollowell likely will be joined by other once-loyal bank customers turning to banks with no debit-card fees to escape the additional cost of routine purchases, financial analysts say.

High-net-worth customers may be insulated from the new fees. Regions, for example, offers a checking account that carries no debit card fees but requires an average monthly balance of $5,000 or more.

Still, some believe small and community banks are poised to scoop up many disenchanted customers.

"Community banks, smaller banks and credit unions have a lot to gain," said Bill Hardekopf, an analyst at lowcard.com. "But even the major banks that have not yet assessed new fees, they stand to plant a flag into the ground saying, 'Hey, no, we're different.' "

Banks face higher costs

Fee changes are the result of last year's Dodd-Frank financial overhaul legislation, which, in part, halved the amount merchants pay banks per debit card swipe.

Regions, with the largest market share in Nashville, has estimated the fee caps will cost them about $170 million annually.

First Tennessee Bank, a major competitor, has introduced a monthly debit card transaction fee for some of their checking account products, which charges customers a few cents per swipe up to $3.

First Tennessee customers will pay 4 cent per transaction up to $3 a month. When processed as credit, customers will be charged 14 cents per swipe. The new monthly fees start Oct. 22.

In the past, many banks made nearly half their checking account profits from fee-based revenue, said Tim Chen, founder of NerdWallet.com, and since overdraft fees came under strict regulations last year, banks "don't have much of a choice but to introduce new fees," he said.

"It's soon going to be pretty much across the board," Chen said. "Some banks are taking a wait-and-see strategy."

Meanwhile, customer discontent is swelling.

"Consumers have had it up to here with bank fees," said Greg McBride, analyst with Bankrate.com. "But banks' response to customer attrition depends on which type of customers are leaving. If they were unprofitable to begin with, the bank might unroll the red carpet on their way out."

Zack Barnes, 23, a recent college graduate who is living with his parents here until he can land a full-time job, said his entire family banks with SunTrust. Since the monthly fees were announced, however, the family is shopping for a new bank, perhaps a local credit union.

"I was upset that I signed up for a free checking account and then found out it's not going to be free anymore," Barnes said. "I don't want to be throwing away $5 a month; $60 a year is a lot to me right now."

Though the new federal regulations will benefit merchants, McBride doesn't expect the savings to trickle down to consumers.

"This is what retail lobbying groups have spent millions of dollars to change. This is going straight to the bottom line," he said.

Banks with assets of less than $10 billion get a pass on the new merchant fee caps, which means smaller institutions and credit unions won't be scrambling to recover lost revenue, or face pressure to alter fee structures on accounts.

However, it remains to be seen how merchants will handle debit cards from the smaller institutions, since it will cost retailers nearly double what it would to swipe a card from a bigger bank.

McBride said customers should expect banks to scale back rewards programs and begin to push credit cards and reloadable prepaid cards progressively more because pre-paid cards are not regulated under the new rules, he said.

Some national consumer advocates also argue that the higher fees will swell the ranks of the unbanked, those without checking accounts at all.

"I think (fee increases) will increase the number of unbanked people we have," said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action. "This is not the group of people that they (bankers) should be looking to make money from."

"I'm hoping these new fees will cause consumers to shop around," adds Ed Mierzwinski, consumer program director at U.S. Public Interest Group.

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