Why You Should Thank BofA For The $5 Debit Card Fee

Bank of America’s new $5 monthly fee for having a debit card is getting painted as a public enemy, but columnist Michael Hiltzik for the Los Angeles Times says we should be giving it a great big hug.

Hiltzik writes:

The swipe fee system for debit cards defined opacity. Visa and MasterCard firms lined up banks to issue the cards and merchants to accept them, and handled marketing campaigns aimed at persuading consumers to use them instead of cash or checks by portraying cash customers as squares or rubes. (Of course, without disclosing that using debit cards isn’t free.)

They also fixed the interchange fees for their bank clients, who pocketed the largest share. This gave Visa and MasterCard an incentive to jack up the fees over time as a way of attracting banks to their networks. This price-fixing, as Durbin related to JPMorgan Chase Chief Executive Jamie Dimon in a blistering letter in April, was “entirely unregulated.”

Hiltzik’s main point is that what the fee has done is made visible the real costs of using a debit card. Instead of getting drawn in with a “free card” that we then end up getting charged higher prices for because the merchants have to build in the cost of the interchange fees into the stickers on the shelves, now we know exactly what we’re paying for. And you can leave a bank that’s charging a debit card fee for another one that’s not, just like how Southwest Airlines has made inroads by offering free checked bags.

Hiltzik writes:

It shouldn’t be a surprise if the bank’s announcement drives lots of its customers away, to credit unions and regional banks poised to welcome them with low-cost or no-cost debit card services. That’s the virtue of price transparency in our system of free enterprise, and for that the proper response may be: Thank you, Sen. Durbin.

Of course, this argument is also kind of saying that merchants are going to lower prices for consumers now that their interchange fees are lower. But With times, credit lines, and cash flows as tight as they are for merchants right now, I don’t really expect that to happen. They’ll take any help they can get to keep their head above water and build in cushion.

Not everyone agrees that we should be lifting up Bank of America in a chair and shouting its praises. Calling the timing suspect, members of Congress are asking the Justice Department to investigate as to whether Bank of America worked together in an anti-competitive manner with other banks to simultaneously launch the new monthly debit card fees.

A debit of gratitude to Bank of America [LAT] (Thanks to Dan!)

PREVIOUSLY
How Bank Of America Picked $5 As The Debit Card Monthly Fee

Comments

Edit Your Comment

  1. MILLERTIME says:

    poppycock i say…

  2. NarcolepticGirl says:

    Yeah, I’ll go ahead and send them a gift basket.

  3. AlteredBeast (blaming the OP one article at a time.) says:

    So they are saying that it’s better for BoA to charge $5 than to have that added cost of the debit card infrastructure passed down to the merchants, and then in turn carried over to the cost of goods?

    It sounds nice in theory that, if BoA is no longer collecting the fee from merchants, that it should lower the cost of goods.

    But that won’t work unless all banks issuing debit cards do the same. They aren’t going to lower the cost of a product specifically for BoA debit card purchasers.

    • wrjohnston91283 says:

      Merchant fees have been lowered for all banks.

      • coopjust says:

        Any bank with under $10B in assets are exempt from swipe fee reform. Almost all local banks and credit unions can charge the old swipe fees instead, but big banks must charge the new fees.

        Hence why banks like PerkStreet Financial can continue offering rewards & such.

    • Sian says:

      It’s better that the retailer pockets the difference than the banks.

      Just saying, if someone is going to profit from this, if not me, my next vote is for the retailer.

      If my debit card starts getting a fee, there will be Words. I don’t even use it except as an ATM card anyway.

  4. Fiona says:

    So you think merchants are going to lower their prices now that the fees have gone down?

    • TheMansfieldMauler says:

      If they remove a cost and can therefore undercut the competition with lower prices, then yes. That’s how the free market works.

      Funny that the free market is invoked in the article as being the reason for the fee increase but it is then said that it won’t work to bring prices back down. I’ve got news for you…it works both ways.
      That’s why prices fluctuate both up and down. See the nearest gas pump for an example.

      • Duke_Newcombe-Making children and adults as fat as pigs says:

        The gas pump analogy isn’t the best example for you to use.

        See how when prices on crude go up, the price increase is represented immediately at the pump, even though the gasoline in question was refined at the lower price per barrel? Contrast with when prices drop on crude, the prices at the pump fall glacially, and only with major downward swings in the price per barrel of oil.

        Se habla “market manipulation”?

        • TheMansfieldMauler says:

          Fine. Bluray players or any other consumer electronic item.

          Do you have to pay $350 for a bluray player, or can you go to Walmart and get one for $90?

          Do you know why you can get one for $90 when they used to be $350?

          Answer: Because prices went down.

          Prices went down because someone decided they were able to undercut the competition. Prices did not stay up artificially because greedy greedy merchants decided to rip off the public and make more dirty dirty money. And you benefit by being able to buy a cheap bluray player.

          • mindaika says:

            When you buy an iPhone at WalMart, is it cheaper than when you buy it at the Apple store? How about when you buy an Xbox 360? Or a PS3?

            • Kitamura says:

              The problem there is that those particular products are closed market products, you have to buy them from Apple/MS, so you can’t just source from a cheaper location. Therefore the lowest price is pretty much already achieved since they’re practically selling the units at the price they got them from the supplier for.

            • jojo319 says:

              I’ve often wondered this as well. I’m guessing that Microsoft, Sony, etc…. requires them to sell at that price, or they can’t sell at all.

          • ludwigk says:

            Consumer electronics are a *terrible* example for what you are trying to illustrate here. This is about a regulatory cap on a fee structure lowering a transaction cost for a certain type of tender, from a certain card issuer, leading to a reduction in cost to the customer, based on some assumptions about market efficiency. What you are saying is true in absolute abstract, but “yes prices will go down because an efficient market would behave this way” is an assumption-filled, tenuous basis for your argument.

            In consumer electronics, the lowering of prices is typically due to technological advances, economies of scale, price elasticity from mass market adoption, availability of better information, seasonal purchasing trends, and pressure from competitors. Merchant fees are subject to NONE of these forces, and makes for a startlingly naive comparison.

    • Nobody can say "Teehee" with a straight face says:

      They will slowly go down, assuming they aren’t working in collusion to keep the prices the same.

  5. Cat says:

    …members of Congress are asking the Justice Department to investigate as to whether Bank of America worked together in an anti-competitive manner with other banks to simultaneously launch the new monthly debit card fees.

    Of course, the banks have learned how to avoid the appearance of anti trust and monopolistic practices. They don’t talk to each other, they all just follow suit when there is a price increase or a new “fee”. Just as the airlines do.

    • frank64 says:

      Visa and Mastercard were formed by the banks to do what they do, it has since been spun off, but the perverse incentives are still there. Their goal is to get the most they can out of the merchants, there is no incentive to lower the price.

  6. frank64 says:

    I made all these points in my posts on this. I think it will end up in lower prices, it will be hard to see though, so that will mean many people will not buy it.

    I don’t think directly lower prices is the main issue. I think it does have to do with fairness. I remind everyone that the system still exists, it just has price controls. Hopefully new technology will come along that can do something, but the banks have control over the system they use, and many are not going to want to change it.

    • ballistic90 says:

      This will end up more like the Airport tax issue. When the airport tax was no longer being collected, airlines raised their prices to keep the cost to the consumer the same. I feel that this will end up the same way: retailers will simply charge the same amount and pocket the difference if their costs really do drop.

      I honestly preferred to pay for the transactions through the retailer. It’s because I paid as I used it, essentially.

      • frank64 says:

        No, you didn’t pay as you used it. You paid it whether you used it or not, and those who did not use it still paid. If the price went up, you didn’t care, it didn’t cost you. You were getting a service subsidized by the merchants and cash customers. This of course isn’t normal for fair.

  7. azzie says:

    Thanking BoA for $5 fee ?

    We should also thank AIG for bringing attention to mortgage fiasco!

  8. prag2 says:

    I agree with Hiltzik’s take. Debit card costs have been buried in retail prices for years. You get to pay them whether you use plastic or not. I’m all for shifting some of this burden directly to the debit card user where it belongs.

    • katarzyna says:

      I agree, but we should thank the people who passed the laws/regulations, not BoA.

    • Greggen says:

      If more people use cash there are costs for that as well. Getting change, depositing money, storing the money until deposit..

      • Wuzzle Wazzle says:

        Of course there are costs for handling cash. But they are certainly nowhere near those costs of accepting cards on a major credit card network. I see many small businesses that accept cash only. I have never seen a small B&M business that accepts plastic only.
        Visa/MC and the banks would love if this was the case. But they would be the only winners.

      • frank64 says:

        But the cash costs are less. He was getting a service, but the cost of this service has gone way up, and he had no recourse. He is still paying for the debit service, much more in line with the cost now.

  9. ole1845 says:

    New swipe fees only apply to banks with 10 billion or more in assets. So when people switch to credit unions or small local banks they aren’t giving the merchants a break. These institutions can still charge the full swipe fee. People act like small banks are some kind of heroes.

    Strange the government implemented this two tier policy. If the swipe fees were too high then they were too high. Lower it for all. Makes no sense.

    • vastrightwing says:

      I seriously doubt anyone thinks small banks are heroes, just less bad than the big banks. Credit Unions charge fees in markets where they can get away with it. I use RBS Citizens and “like” them more than other banks only because they haven’t ripped me off too badly. Having said that, they are a bank and they will try to charge any new fees they think they can get away with. Since I live in an area where there are dozens of banks competing, I benefit.

  10. Thyme for an edit button says:

    I’ll see send BofA a thank you note after I finish writing my note to my health insurance thanking them for hiked premiums and deductibles.

    • Rena says:

      Oh, and don’t forget to thank all those germs that strengthened your immune system by making you hideously ill!

  11. lovemypets00 - You'll need to forgive me, my social filter has cracked. says:

    Oh yay, now people will go back to writing checks. Like last night. I had to stop at WalMart for three simple things. I got to the checkouts, and they had about 5 of 28 open. So I got in line, and 20 minutes later, finally left the store. Two people in front of me wrote checks. Self checkouts were backed up 10+ people. So, we can look forward to even slower shopping lines.

    • podunkboy says:

      Don’t blame the check-writers, blame the Walmart cashiers who work as slow as possible, or blame Walmart for not having enough full-service lanes open.
      My check is written except for the amount before I even get in line, probably takes less time than for them to count out change.

  12. TuxthePenguin says:

    “…members of Congress are asking the Justice Department to investigate as to whether Bank of America worked together in an anti-competitive manner with other banks to simultaneously launch the new monthly debit card fees.”

    Ummm… you cut all the bank’s revenue streams at the same time and then are surprised when they start coming out with the new fees around the same time? As for them seeming to hit $5… that’s what oligopolies do. They match price increases but not price decreases if they can help it.

  13. XanthorXIII says:

    If someone says you should hug a cactus because that is what it is, would you do it?

  14. kataisa says:

    “Why You Should Thank BofA For The $5 Debit Card Fee”

    I think not. Not surprised this malarky came from the LA Times.

  15. maxhobbs says:

    Gee, in this “ideal” world, why doesn’t the merchant give me a discount for paying in cash??

  16. Alliance to Restore the Republic of the United States of America says:

    Seems to me they shouldn’t have been allowed to price fix in the first place.

  17. lostalaska says:

    Michael Hiltzik for the Los Angeles Times could very well be suffering from Stockholm syndrome.

  18. PLATTWORX says:

    Processing checks is many times more expensive than processing a debit card transaction. Makes saved a ton of money when people switched to debit and were able to layoff thousands of employees.

    Moving people back to checks is a loosing proposition for them. They expect most customers will cough up the fee. If my bank tries this my debit card will no longer be used for purchases. I can just as easily swipe my credit card and pay the balance in full each month like I do now. Same money.

  19. Shmoodog says:

    That’s a pretty stupid argument, I must say. Circular logic, and still doesn’t explain away the anger we all have for having to PAY to use our own MONEY – by using a card the banks invented and then shoved down our throats.

    Nor does this really do anything about the opaqueness about bank fees. I’d rather pay a strict fee up front, per year, then have banks steal it from me in ways I have to winnow out.

    It reminds me of the innkeeper from Les Miserables, who has a thousand ways of cheating his customer, 5 cents for the window open, 10 cents if you leave it closed, kinda thing.

    So yea, lemme just pony up my thanks for banks…you wanks.

  20. Scamazon says:

    Should I be pissed off that I have abandoned all my credit/debit cards (except one for emergencies) and have been paying CASH for everything?

  21. Applekid ┬──┬ ノ( ゜-゜ノ) says:

    I’ll give them a great big hug.

    To find out the best place to drop the knife.

  22. Nighthawke says:

    The best solution is not to use a debit card at all. If you NEED to, use a good credit card, and manage it well.

  23. SPOON - now with Forkin attitude says:

    interchange fees are going to remain stupidly high because visa and mastercard can. Since most consumer goods didn’t go up in price to the end user but did go up in price to the vendor (you try competing if you don’t charge cover price on a magazine) and the per-transaction fee is almost opaque to merchants anyway due to the arcane billing rules, there isn’t going to be anything passed on to the consumer.

  24. scottydog says:

    banks charging fees at the same time is no different than airlines all raising fee’s at the same time. If one can do it an d get away with it the others will follow. I think we will find no colluding going on.

  25. Kimaroo - 100% Pure Natural Kitteh says:

    I am so tired of this sorry argument that businesses/merchants are losing money by taking debit cards.

    By all means, stop accepting the cards and then put up with losing money from bounced checks, deposit fees, extra security, stolen cash, and embezzlement.

    Make it less convenient for people to spend money at your store.

    Not doing that, eh? That’s what I thought.

    Prices aren’t going to come down because of this change, the merchants are just going to pocket the difference.

    The good thing about the BOA $5 fee is that people are pissed off enough by it to switch banks to a less crappy institution.

    • smbizowner says:

      BTW.

      my swipe fees for Pin ENTRY debit transactions may have gone down. BUT MOST CUSTOMERS SWIPE THEIR DEBIT CARDS AS CREDIT CARD TRANSACTIONS. No change in swipe fees.

      So my swipe fees will not decline and……….. Visa and Mc just increased their cut.

      So overall there will be no decrease in my CC/DC fees.

      and stop with the BS about “stop taking cc/dc and go back to checks/cash.” It is what it is you all like your plastic, we all will continue to price accordingly. At my store CASH IS KING>> no one carries it anymore.

  26. david.c says:

    “Of course, this argument is also kind of saying that merchants are going to lower prices for consumers now that their interchange fees are lower.”

    No … merchants don’t give up profits for no reason. What drives prices down is competition. To capture market share, stores will lower prices (or improve service) … neither of which is possible is there is not much profit available to re-invest in growing the business.

    Less fees = more profit = more opportunity to re-invest said profits towards growing the business. People tend to forget this fact when they talk about “greedy corporations” just keeping any monies they get from tax breaks or anything.

    It is, and always will be, about re-investing your profits … and the more profits you have, the more likely you are to re-invest to grow your business … so the business grows, your net worth grows, and you earn even more profits, that’s capitalism and it works given the chance.

  27. DragonThermo says:

    I think Congress should investigate merchants to find out why they aren’t lowering their prices. It is criminal that banks, who are providing a service, are punished yet merchants are allowed to improperly profit. Merchants need to lower their prices by $5 per customer per month. If they don’t, Congress needs to raise corporate tax rates on merchants by $60 per customer per fiscal year to punish them for making illegal profit.

    Why should I subsidize evil greedy merchants? Why should I pay $5 per month while they pocket an extra $5 per month?

    • frank64 says:

      Merchants were not necessarily charging us extra. Especially not directly. The $5 is the number BOA is charging us. It does not mean that merchants were paying $5 a customer per month. It would depend on the merchant and the type of business, not to mention the specific customer. The merchants had no control. The bank is going to have more knowledge of its customer and have more control The customer likewise will have more control, see the direct fee and be able to make a decision to avoid it. Better for us in the long run.

  28. VashTS says:

    ALl this time I thought BOA was greedy…they did it for my benefit…how nice ; /

  29. farker22 says:

    is this a joke, it was government mandated reform – dont believe this flat out bullshiat

  30. shepd says:

    You guys in the states just need a better debit system. Check out what Canada has. Interac is pretty consistent and the fees are within the realm of being reasonable (I’ve had merchant fees as low as 15 cents a transaction). Some banks trump them up to be more expensive than they are, but that’s the bank’s problem. Overall, it’s good enough you’ll often see Canadians with no money in their pockets and no worries about getting more. Personally, it’s pretty rare I’d carry more than $20 on me during a shopping trip.

  31. SlimDan22 says:

    Im just waiting for gas stations to charge the same price for gas no matter which way you pay either being Debit/Credit or Cash

    Also a debit card transaction is equivalent to sending an email, it costs next to nothing. Bank Of America is just trying to make up there profit loss by charging $5, end of story

  32. ancientone567 says:

    Bank of America had a really, really bad idea. For that somebody needs to be fired and they need to stop the bad idea. It is really that simple.

  33. Foil says:

    Kind of the same way we should thank the Taliban for pointing out security flaws in the airline industry?

  34. VashTS says:

    Are banks double dipping? They aren’t also the credit card processing company?

  35. Peggee is deeply offended by impetulant, pernicious little snots disrespecting her and violating her personal space at Best Buy. says:

    Honestly? I am grateful to BoA, for their timing and the publicity they drew to this issue. No one cared much when it was one or two of the other banks, including the one I’m moving away from now. If they hadn’t needed their piece of the pie, there wouldn’t be this massive drive towards small banks and credit unions, and most people would have resigned themselves to the fees when they saw that no one was getting hopping mad about it. It also wouldn’t have been blatantly obvious that the banks were in essence price-fixing their fees–by introducing them all at the same time and for around the same amount–to limit consumers’ options, which is now being investigated. Sometimes their stupidity works for us.

  36. doctor_cos wants you to remain calm says:

    Why not pay the monthly $5 fee with a BofA Gift Card?

  37. kmw2 says:

    Prices are sticky – once they go up they don’t tend to go down. So, I reckon _merchants_ should be thanking BofA, but the average consumer isn’t going to see that $5 a month back in reduced prices any time soon.