Wow, US Banks Really Hate Debit Cards

September 30th, 2011 at 11:29 am David Frum | 59 Comments |

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One of the really striking differences between daily life in the US and Canada is the all-pervasiveness of debit cards north of the 49th parallel and their comparative absence to the south.

On the US side, banks until recently charged retailers a very hefty price for the use of a debit card, averaging 44 cents a transaction. This summer, the Federal Reserve imposed new limits on debit card charges, driving fees down to an average of 24 cents.

This week, Bank of America responded by imposing a new monthly charge to use a debit card at all.

Bank of America attributes the new monthly charge to genuine cost issues. Maybe. But it’s always worth remembering that banks detest debit cards on principle, and for exactly the reason that consumers like them. Debit cards prevent consumers from accumulating excess debt. They compete with credit cards, which encourage debt. And despite today’s ultra-low-interest rate environment, credit card interest rates have reached an all-time peak of an average almost 15% APR.

So yes it’s theoretically possible that banks are on-forwarding genuine cost increases. But it’s also possible that banks do their accounting in such a way as to make the strongest possible case against the debit cards they hate, so as to drive consumers back toward the dangerous device that makes them so much money: credit.

Happily, there are other banks in the world than Bank of America. (I’m a customer, but I’ll be rethinking.)

Whatever your personal financial decisions, one lesson should be taken by all from the financial crisis of 2008-2009: more skepticism is due about everything the big US banks say about what they do and why they do it.

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59 Comments so far ↓

  • D Furlano

    I left Wachovia/Wells Fargo and went to a credit union.

    Not worth dealing with big banks.

  • Graychin

    If you use a debit card on a daily basis, I have no idea how you keep track of how much money you have in your account. Mr. Frum and his friends don’t have to worry about minutiae like that, but many of us do.

    That’s why I refuse to use a debit card. I use a credit card, and pay off the balance every month. I had to make a stink to get a plain ATM card that was NOT a Visa debit card!

    I had the opposite reaction from Mr. Frum to the BofA announcement. For years now, banks have been encouraging us to use debit cards instead of cash (I mentioned my experience above). That way they get a slice of everything we spend – even simple and trivial things like buying a McDonalds sandwich – in the form of a fee from the merchants. Now that we are in the debit card habit, they feel like they are in a position to charge us $5.00 per month for the privilege of accessing our own money. In addition to what they charge the merchant.

    My credit card is still free. I pay cash for everything under $20, to give the merchants a break on small-transaction fees.

    Banksters are blood-sucking *&^%$#@#$%! Especially my bank – Bank of America. I would switch to a credit union, but there isn’t any CU access close to the little town where I live. At least BofA has a handy ATM.

    My sense is that banks don’t lend money so much any more, and exist primarily on fees. No risk that way. Does anyone have statistics on that?

    • blowtorch_bob

      “Banksters are blood-sucking *&^%$#@#$%!…”

      Don`t you mean “&?#ÉÉ#&^%”

    • shiznitoincognito

      You keep track through online banking. I can barely contemplate how people kept track of their total before online banking! A quick check on your bank’s website while sipping your morning coffee and you’re good.

      • Banty

        I guess you never have pending checks or deposits … ??

        • dante

          What’s a “check”? You mean those paper things that people used to send around before online banking?

    • Pete Q.

      I don’t have statistics, but I’m sure revenue from fees is substantial (whether from consumers or merchants.) I don’t know how much this is still the case, but they had arranged to have a day’s largest transactions debited from accounts first so that an overdraft was more likely and of course, overdraft fees are pretty hefty.

      I spit my purchases between my debit card and one of 2 credit cards. You do get some cash back from credit cards as well as some better protection in the case of fraudulent transactions. I keep an eye on my bank accounts online every day, so it won’t take long to spot a problem.

    • DifferentFrumer

      I have no idea how you keep track of how much money you have in your account.

      Online banking. I don’t even have to use a written check register any more. By the time I get home from making a purchase, most my debits are already posted on my online checking account. I just download them to Quicken and I’m back to pursing my happiness instead of balancing my checkbook.

      • Graychin

        Online banking doesn’t record outstanding checks. (Remember checks?)

        If you try to overdraw your account with your debit card… another fee! So if you use a debit card a lot, you’d better be carrying a smartphone along with it – to check your balance.

        Back in the day, when we wrote a check we would write down the amount of the check in something called a checkbook. Then bring down a balance when we got home, perhaps using one of those new-fangled electronic calculators. Quaint, isn’t it? :D

        • overshoot

          “Online banking doesn’t record outstanding checks. (Remember checks?)”

          Barely. I just looked at my register, and I wrote three last year. That being the case, it’s not hard to remember them.

        • Banty

          I still use checks for bills. I limit my online banking to where I really think I get value for it, not just to save the minute or so to write out a check, affix a stamp, and enter it into Quicken. I don’t want to give my bank code to a bunch more merchants; I dont’ want to run up a huge itemized credit card statement for marketeers to datamine.

          Call me old fashioned.

        • Kevin B

          Banty,

          You still use stamps? Isn’t that like a forty something cent tax on every bill you pay?

          Since I started using online banking, I almost never buy stamps. I’m glad the post office came up with the “forever” stamps, because on the rare occasion when I need one, I’m never certain if the ones I have are the right denomination to get my letter delivered.

          I wrote a check yesterday to hold an apartment for my mother. It was number 1010, meaning it was the tenth check since I opened the account three years ago.

        • DifferentFrumer

          (Remember checks?

          Barely. I wrote one to a bee keeper earlier this year when a swarm tried to take residence under the eves of my roof. Looking at my check register, that’s the only check I wrote this year and it was in March. Maybe as I and my spouse get older we somehow don’t have circumstances in which we need to use checks. What’s normal for us is to accumulate a pile of receipts we get using our debit card and go home and enter them on Quicken (which is what you can do with checks, too). So, no matter what type of transaction you use, Quicken covers it. I haven’t used a written check register for 4 or 5 years and, no boasting, my balance across my check and savings, credit cards and investment accounts hasn’t been out of balance even a penny in those years. I think the key for my happiness has been how Quicken covers every kind of transaction I use, including checks. I used to wonder what misery I was facing with credit card purchases. No more. The instant they hit my account, Quicken grabs them and my complete financial picture is up-to-date every single day unless I skip a day out of pure laziness and don’t download transactions. You can even track cash expenditures on a daily basis. I don’t have a need to do that since I virtually never use cash, but I could. Online banking has reduced what I used to spend entire weekends on down to maybe 5 minutes a day – no stamps or envelopes at all. In fact, I stopped using my Shell gasoline card because they seem to deliberately *not* allow you to pay your bill automatically, as if they want to forget to pay them so they can pile on extra fees. B.S. I just use my debit card at their station and I shredded their card.

    • nwahs

      “If you use a debit card on a daily basis, I have no idea how you keep track of how much money you have in your account. Mr. Frum and his friends don’t have to worry about minutiae like that, but many of us do.”

      Um, I log into my account online and check the balance? I keep a soft bottom of $2000 in my checking account?

      There are two types of folks- those who stop for gas on E (or below) and those who stop at 1/4 of a tank.

      • Banty

        I’m one of those silly people who tuck away the debit slips, and each evening when I’m home, record them into Quicken. Need that to reconcile when the statement comes in anyway.

        No one else does that??

        • nwahs

          I have to admit, even before online banking, I was never good at tracking my account to the penny or even dollar. I knew about how much I had within about $100, but I think I reconciled one checkbook in my life. In my college days, I paid a few NSF penalties for that bad habit. Then I started keeping a soft bottom in my checking account, a practice I still keep today.

          With online banking, I see no need in saving those slips, and like another person posted, I may write about 3 checks a year ( mostly gifts or loans). I pay all my bills online. I scan my account every few days for any type of weird or duplicate charges, but I trust the bank to handle the nickles and pennies. I can’t see me checking the math :)

    • The Walking Eye

      As others have said…use the interwebs to check it. I can check my accounts while I’m in line and transfer money if needed with the phone in my pocket.

      Further, how in the world do you keep track of your finances when you’re buying everything over $20 with credit card? Most people are more likely to buy things they don’t need when they use a credit card rather than a debit card.

      And, why do you care if your bank gives you a debit card rather than an ATM if you don’t even want to use it as a debit card? What difference does it make, other than some odd principle of yours?

    • Churl

      “If you use a debit card on a daily basis, I have no idea how you keep track of how much money you have in your account.”

      Try this: carry a little book in your pocket, note therein each transaction, and keep a running net sum of deposits and withdrawals. It is just like using a check register in days of old. Then check the balance periodically with online banking.

    • japhi

      You CC is free for you to use but merchants pay a discount rate, most of which goes to the issuing bank, each time your card is swiped.

    • BarbD

      I, too, noticed that when I used my card in debit mode, I got charged usage fees, while when I chose credit, I did not. My habit is to pay my credit cards off every month, so it was easy to figure out which was the better option for me.

      I used to use cards all the time, but with all the fees and changing due dates for credit card bills that seem to defy my ability to pay them before fees begin accruing, I’ve gone back to making most of my daily purchases with cash. It has the added benefit of making me think a bit harder before making an impulse buy.

      • Kevin B

        My credit cards all close their periods around the same time of the month. Around the 23rd of the month, I start checking the balances online. When I notice that one of them has closed, I pay the full balance. It’s kind of funny that I get an email telling me that my statement is ready to view, usually a day or two after I have made the payment.

        For regular payments, such as my car payment, I set up the next payment as soon as the current one clears. I could do an automatic recurring payment, but I like the control of paying it each month, and monitoring my balance.

        When I was in college (in the 1980s), I bounced a lot of checks. In the 1990s I paid a lot of credit card interest. Memories of my past irresponsibility (when I really couldn’t afford it) are what keep me diligent now.

        I keep a large balance in an investment account, so my bank charges me almost no fees for anything (and gives me up to 200 free stock trades every year).

        I got an ATM for overseas transactions that not only charged no transaction fee, but refunded me any fee charged by the machine’s bank. I used ATM’s in the UK that didn’t charge a fee anyway. My bank’s software did the currency conversion at a competitive rate, and I guess their software wasn’t smart enough to know what was a fee and what wasn’t, because they rounded every transaction down to a multiple of $5 and refunded the difference to me. I actually made a profit on every ATM withdrawal.

        It’s nice having money and not having to struggle to pay my bills. Looking at my life now and back on the days when I lived paycheck to paycheck, I realize two things: 1)When you’re wealthy, people want to give you stuff. 2)It costs a lot of money to be poor.

  • blowtorch_bob

    It`s debt that makes the world go around. The sooner you go into the debt the sooner you sell your soul to the devil. Same with nation states. The more debt the more assets the state puts up for sale at fire sale prices.

    Why there is a theory why the U.S. invaded Iraq -forget all that talk about WMD`s. They did it to drive up the debt and in the long run create a debt crisis. Pretty soon the U.S. is going to be selling Yellstone National Park and ole Miss to you know who.

    It`s a return to the feudal state of the middle ages.

  • windsorboy

    >> One of the really striking differences between daily life in the US and Canada is the all-pervasiveness of debit cards north of the 49th parallel and their comparative absence to the south. <<

    While is is undoubtely true and I certainly have lots of friends that use them all of the time, I prefer to pay for all of my purchases using a credit card and paying it off when the bill comes in. The reason is two fold: 1) I've had by debit card information stolen twice in the past and although the bank reimbursed me for my losses, it was a scary moment to find my chequing account wiped clean. 2) When I use my credit card I earn cash back (paid annually), double the warrantee of any merchandise I buy and am, I believe, better protected from fraud.

  • Stewardship

    I remember as a rookie banker back in 1982, the chairman of our regional bank saying, “We’re not going waste money on these ATM’s–it’s just a fad.” Soon, though, the number crunchers figured that if all of our customers used debit cards, we wouldn’t need tellers anymore.

    With moves like this, BoA is just hastening the day when some bank simply specializes in debit cards. A visa/mastercard-like monopoly on debit card transactions could yield spectacular profits on even slimmer merchant fees…especially with no brick and mortar, no tellers, no loan officers, no repo department. Worse for big banks, the ‘debit card only bank’ would sweep deposits from other banks into its virtual vault.

    Banks are like the auto companies in many respects. The folks that run them only know how to think one way (maybe why Ford has done so well with a CEO out of a different industry.) They’re quick to pay for any consultant who comes peddling the latest and greatest idea to make more sales or squeeze more profitability. Since the culture is stacked against creativity, the new idea fades away once the consultant heads on to the next sucker.

    • valkayec

      You said most of what I would have, except to explain that automatic transactions cost banks only pennies. Years ago when I worked for VISA I remember reading that because of their computer and data transmission systems, debit card use was practically cost free while the profits from fees were enormous. Moreover, a bank’s largest profit centers are in debit and credit card usage.

      Frumple, yes BOA is going to begin charging. They somehow have to make up for their enormous losses after buying CountryWide. [smirk] But this isn’t the first time BOA has done some pretty idiotic things that chased ordinary customers out of the bank.

  • Frumplestiltskin

    I am a BofA customer and if they do not waive my $5 fee I am leaving them taking all my IRA’s and investment accounts away from them. I have 0 debt, I don’t buy a car until I have the money to pay for it and those bastards are going to charge me money to access my own money, money that they loan out for a nice profit to others and have the government insure against loss.
    I have zero credit cards but this was because in my 20′s I was too much an impulse buyer so I cut them all up and have been living debt free ever since.

    My wife can join a credit union through her work. If I am being charged then BofA will lose a customer.

    • Drosz

      Ditto.

    • Banty

      Why were you ever with BofA anyway? It’s been credit union for me all the way, for decades.

      • Frumplestiltskin

        it is funny, I never was, I was with UJB which was bought by Summit, which was bought by Fleet, which was bought by BofA so I fell into their lap. being I never have had to pay fees (my company opened a 401K at that local bank for us) I never changed. I also found out I don’t have to pay this fee either.

        But I will look into a credit union.

  • You’re Not Selling Me – Textual Fisticuffs

    [...] Update: Blood is dribbling from my nose and ears. Frum yesterday: we should elect a financier as president! Frum today: Man, bankers really like to screw the hell out of people, huh? [...]

  • jamesj

    Why is it that whenever the name Bank of America is uttered, it is always part of criticism? I constantly hear complaints about them from friends and family. The drumbeat of bad policy has become so constant and so sustained that I question how they can stay in business with such bad PR spreading across the land. They seem to almost loathe their customer base. It is like they are conducting an experiment on human endurance.

    • ottovbvs

      “They seem to almost loathe their customer base.”

      Don’t take it personally. They are just trying to claw back lost revenue from the lost merchant fees. In fact if there’s a huge backlash by their customers they’ll probably drop the idea.

    • Graychin

      Agree with James. Bank of America doesn’t hate debit cards – it LOVES them because processing a card swipe has zero marginal cost. Then that zero-cost transaction gives the bank a slice of every payment that you once made with cash. And maybe a windfall of fees from you.

      But BofA DOES have contempt for its customers, even if it doesn’t exactly hate us. To those of you who will leave BofA if you won’t pay their silly fees: good riddance! They aren’t making money off of you anyway. They don’t lend out your measly deposit any more. Too risky. So if they limit their retail market to people who carry big balances on their credit cards and don’t care what fees they pay for checking and debit cards, BofA will be a lot more profitable.

      Know what they call people who pay off their credit card balances every month? “Deadbeats”! It’s true! :D

      • Drosz

        I feel like a battered wife…. It’s all my fault! I made them charge me fees!

      • ottovbvs

        “Deadbeats”! It’s true!”

        Actually I’m well aware of it since I’m a deadbeat. BoA don’t hate or have contempt for their customers. They are simply a market and like any seller they are going to charge what the market will bear. All this personalized stuff is total bs. They maybe frustrating (I’ve had the odd shouting match with credit card companies myself) but it’s not personal.

  • ottovbvs

    The problem with debit transactions (as distinct from credit transactions) is they don’t offer the same opportunities for debt creation and therefore yield. If someone wants to use the debit function either largely or exclusively the obvious solution is to switch issuers. There are plenty of small banks who would just like new customers and don’t charge for debit transactions. I would never dream of using my BoA card for debit purchases.

  • Frumplestiltskin

    by the way David, why no comment on Anwar al-Awlaki killed in Yemen?

  • forgetn

    One massive difference is that there are few hidden fees in Canada, they’re all upfront, in your face. This is the cost of a banking oligopoly (6 banks control 95% of all deposits). debit cards are very popular in Canada because many people do not qualify for credit cards. Personally, I never use it, since I pay off my credit card balance every month it is simpler.

    The American obsession with the perception of “Free” services is troubling, of course clearing a debit card is much cheaper than clearing a check, but its not free. In 2011, I’ve written a grand total of 2o checks — 5 years ago it was more like 200 per year.

    One of the big advantage of the recent American bank reform is that banks have fewer options in “hiding fees”, do Americans actually think they didn’t pay the $5 a month before?

    Check fees were substantial — internet banking is much cheaper, but not free!

    • Steve D

      “Debit cards are very popular in Canada because many people do not qualify for credit cards.”

      And there’s the problem with the American economy in a nutshell. Fifty years ago you had to be financially solid to have a credit card. Once you had to be financially solid even to have a checking account.

  • nwahs

    And today at 4pm. Climbing up the Walls street.

    http://www.youtube.com/watch?v=qbtZyuOMdHI

  • overshoot

    This is what happens when the Government interferes in the free market. Left to themselves, the big banks would compete to increase their profits over the pittance that they’re currently allowed. Who knows? Someday someday competition might even drive banks to pay us for the money in our accounts rather than charging us for the expense of keeping it safe for us.

    But that day is not this day.

    • Steve D

      It COSTS money to keep money in a bank. It has to be accounted and guarded. We hide the cost with compound interest, as we hide so many costs, so we pretend we’re doing the bank a big favor by loaning them our money. Reality is they loan some out, make a profit on the interest, and give you some back or at least cover the cost for you. But if you have too little in the bank or withdraw too frequently, you start costing them money and they come after you to get it back. The banks will NEVER pay us for our money – the best that can happen is they can earn enough from loaning money out to cover our costs for us.

      But then again, they can’t make a profit from charging interest on loans, either, right? That’s “blood sucking.”

      So what do you get? Security. Ask the guy who had a couple hundred thousand in silver recently. The bank wanted “too much” to store it. So he kept it in a safe at home, and the wrong people found out about it (probably because he bragged about what a cool precious metals investor he was). So they, er, “persuaded” him to open the safe. But at least he saved those pesky bank fees.

  • Gadsden

    I realize this was a short piece, but it would be helpful if Mr. Frum could follow up on how the Canadian fee or regulatory structure is different so as to encourage debit cards.

    I think one of the lost opportunities of the financial crisis is that we did so little to remove the structural incentives for debt in the US. These would include everything from the deductability of interest payments for corporations (but not dividends), the mortgage tax-deduction for individuals, and incentives to take on mortgages without a substantial down payment. It would have been useful public policy to encourage debit card use over credit card use. But of course the idiot Senator Durbin has achieved the opposite effect.

    • Banty

      No, the “idiot” Senator Durbin has encouraged *aware* debit card use. And one more way to distinguish between the banks we should bank with, and the banks we should not.

  • Fastball

    B of A is telling people like me that they don’t value my business. Fine, then I don’t value them. Goodbye B of A, hello locally owned and operated credit union.

    The bozo who thought of this debit card fee must have received his marketing degree from a cereal box – same as the geniuses running Netflix.

    • dugfromthearth

      The fact is that they don’t value your business. People who have credit cards and pay off the monthly balance each month they don’t want either. They make their money charging very high interest rates on credit card loans. Banks are not there to provide you a service but to take your money.

  • tohojo

    I’m guessing this is some of the math they used to figure this out:

    Old merchant Fee= 0.44 (12 debit purchases to break 5$, 23 to break 10$)

    New merchant Fee= 0.24 (21 debit purchases to break 5$, 42 to break 10$)

    New merchant Fee + New customer Fee= 5.24 (1 debit purchase to break 5$, 21 to break 10$)

  • Larz99

    The banks and Wall Street are the new face of organized crime. Who would have thought that using cash would be the best way to avoid paying money to thugs and criminals.

  • Banty

    “So yes it’s theoretically possible that banks are on-forwarding genuine cost increases.”

    I suspect for the banks they say “cost increases”, and cross their fingers behind their backs and think “cost increases is the same as replacing a lost avenue for profit …right? right?”

    Folks, this is actually good news. What it is, is that a large portion of costs that were opaque to the consumer – merchant fees, are now brought out into the open. Now, banks need to compete based on their fees, instead of tucking them into every price we pay at the point of sale, cash, credit, however. A free market depends on an aware consumer – well, now we have a measure of awareness.

    Merchants may not immediately drop their prices, but it’s possible that one or two may, forcing the rest to follow suit in this distressed economy with cost-conscious consumers. Another free market win for us, and for those merchants, at least for the interim. Or, maybe this won’t happen – business colludes in many ways every day, not by handshakes between cigar-smoking barons in dark-paneled rooms, but by benchmarking against each other. But, at the least, it removes an item of upward pressure from consumer prices, and eventually competition will flatten price increases where they would otherwise have gone up faster.

    The only losers will eventually be those who played the card-points game. But that doesn’t provide a service, does not create any products, it was just a underhanded way to siphon value from some pockets, to certain others in a big marketing ploy. (And we thought only crypto-liberal socialists liked to redistribute income!) And I will, finally, not have to wait in line behind people who are signing card slips for $1.50 coffees in the morning.

  • LFC

    I see Bank of America and every other large bank to be utterly useless for the average consumer. What do they bring to the table to justify such high fees?

    We have our accounts at a local bank. They have better terms for our checking, savings, and business accounts, they wrote, refinanced, and held our mortgage from the time we built our home. They have never sold a mortgage. Remember banks that actually wrote mortgages as interest producing investment vehicles rather than fodder for derivatives? Service is great.

    Not sure how it is elsewhere, but here in SE Pennsylvania, New Jersey, and Delaware we have an awesome convenience store chain called Wawa (named after the town where they had their original dairy). They have no-fee ATMs … unless of course your account is in one of those blood sucking banks that charge you a fee to use an ATM other than theirs, but then that’s a problem with your bank and not Wawa. So I have more no-fee ATMs at my disposal for at least a 100 mile radius than BofA could ever provide.

    I don’t know of one large or even medium bank that can make a case for me deposit money with them and use their services. People need to wake up and just leave expensive banks.

  • vishnu

    another reason I hate using my debit card: in case of FRAUD.. I don’t think banks reimburse you if a fraudulent charge is made to your debit card, do they?

    (with credit cards you can dispute the charge; with debit cards, 1) the “dispute” if any, is AFTER THE FACT, i.e., AFTER the money has been taken out of your bank account; and 2) at any rate, I don’t know if banks reimburse you..)

    I use my debit card as little as possible, only when I’m short of cash because I forgot to get cash from ATM, or if it’s a charge larger than the limit on my one cc ($1000); but that fortunately happens very little, once or twice a year.

  • Redrabbit

    Let them eat all the costs coming about due to losses that protect consumers. They don’t like it, let them go cry in their yachts.

  • Leo

    I live in Ottawa, Canada.
    I have three bank checking (or “chequing” as we call them) accounts. I use debit with two of them.
    The principle one I use charges me $12.95 per month for unlimited debit transactions. The other bank charges me $1.50 for each debit transaction.
    My rule of thumb is: cash for transactions under $20.00; debit for transactions over $20 and under $100; and credit card for transactions over $100 (in order to get the air miles points.)
    I probably have well over 100 debit transactions per month. Here in Canada at some establishments such as grocery stores or Wal-Mart, the vast majority of customers’ transactions are debit. All my accounts come with overdraft protection, so if I miscalculate I am still covered – albeit with an overdraft charge.
    I can even use my debit card anywhere in the world where VISA is accepted. The debit card has a VISA symbol it, which fools the foreign merchant into thinking it is a VISA card. The merchant processes it like a credit card, but when it hits the Canadian banking system it is automatically converted back into a debit transaction.

  • Arms Merchant

    “This summer, the Federal Reserve imposed new limits on debit card charges”

    Wrong. The Fed didn’t come up with this on their own. It was the Dodd-Frank “reform” that required it.
    http://www.forbes.com/sites/halahtouryalai/2011/09/29/bofas-new-5-debit-card-fee-blame-dodd-frank/

    “That’s why I ordered a review of all government regulations. So far, we’ve identified over 500 reforms, which will save billions of dollars over the next few years. (Applause.) We should have no more regulation than the health, safety and security of the American people require. Every rule should meet that common-sense test.” Pres. Obama, Sep 8.

    So, how’s that working out for you?
    http://www.signonsandiego.com/news/2011/sep/30/regulatory-tsunami-impeding-job-creation/

  • valkayec

    As someone who worked on the marketing/advertising materials for over two decades on BOA and VISA, it’s worth noting a few things.

    First of all, BOA has a horrendous internal atmosphere which translates into poor customer policies. It’s not that they hate average retail customers, but historically BOA has not seen these customers as valuable. In the mid-’80s, BOA made a shift from retail customer advertising and customer service policies to private banking. Within a year, BOA lost so many retail customers – those who had average checking and savings accounts – that they were forced to change policies.

    Second, all banks, regardless of size, do not want credit card customers who pay off their bill at the end of each billing period. Moreover, all banks actively discriminate against these customers and often will not offer them cards, regardless of a person’s excellent credit (FICO) rating. A bank canot make any money (interest payments) from someone who pays off their bill each month prior to monthly APR calculations. Just because a bill is due on X date does not necessarily mean that additional APR calculated fees have not been added to the bill or subsequent bills. Unless Dod-Frank changed the rules, banks were very sneaky about adding in extra interest fees depending upon the APR dates of the expenditures. And unless you’re a financial attorney, you wouldn’t know that you’re being charged a bit extra…which is why I appreciated Eliz. Warren’s message on making banking documentation plain and understandable to the average customer.

    Third, the fees charged merchants for debit and credit cards are different. Debit fees to the merchant traditionally have been much higher. So, when a merchant asks you “credit or debit” say credit, regardless of your using a debit card. The purchase will be processed in the same way at the bank and taken out of your checking account, but the merchant will save a hugely significant amount of money over time. Why the difference in fees? Think interest rates charged to customers who on average don’t pay their bills off each month.

    Fourth, most banks make most of their income on credit card interest. It’s their largest profit center. Anything that cuts into that profit center hurts their bottom line. When BOA lost a large percentage of their retail customers in the ’80s, they lost a large percentage of their greatest profit center which sent their profits and stock prices tumbling. And since BOA had a huge amount of their investment tied up in real estate, both in CA and in So. America, the loss of those profits nearly destroyed BOA when real estate prices tumbled.

    Fifth and last, as I wrote before, costs to card issuing companies – VISA, Mastercard, Discover and to some extent Amex – per purchase are only a couple of pennies, regardless of whether the purchase is debit or credit, to process. Debit transactions – deposits as well as purchases – reduces banking costs as there is no need for tellers, brick and mortar locations, etc. But debit transactions don’t add to the bank’s profit center: interest fees. So, while the cost to the bank remains basically the same for debit and credit transactions, credit transactions provide a greater income while debit allows the bank to reduce actual operating costs. Both are needed and desired to reduce costs and increase profits. But credit is the real profit center.

  • Houndentenor

    The banks and credit card companies have long been indignant that anyone still pays for things in cash. How dare we do any transactions without paying them a fee!

    I still write an occasional check. Not everyone is set up to be paid online, especially bankers. I do have to keep up with receipts for business related expenses, especially when traveling. I also check my online bank account at least three time a week. There’s no other way to catch the bank adding fees or someone scamming you (auto-renewal when you did a one time purchase!!!).

    Oddly enough, last month Chase charged me $6 because I didn’t use my debit card ENOUGH! Looks like next month they’ll charge me for using it? I wish they’d make up their minds.

  • Rossg

    Many years ago, credit card issuers tried to charge annual fees on what were then ‘plain-jane’ cards. It didn’t work out so well; at least now, if you pay an annual fee, you are probably earning ‘rewards’ to be used later.

    Debit cards are, of course, different from credit cards, risk limits being one of the differences.

    Still, if people love their debit cards as much as some on this post, then we will all learn to eat the fee and be happy. Some big banks have chosen to impose them; many others might follow, at which point fees will become accepted. This is a move to test what the market will bear.