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Avoiding The New Norm: Debit Card Fees

October 4, 2011 by Jon

Debit Card FeesBank of America took a big leap last week, jumping head first into the monthly debit card fee ring.  Starting the next round of additional banking fees introduced to counteract the new limits on debit card swipe fees which took effect Oct 1st.  Which has not made me and a few million other BofA customers happy campers.  But don’t fret, there are still options available to avoid them.

There have been a few banks that have tested the debit card banking fee, but on a small scale.  Wells Fargo has tested the new fee in five states.  J.P. Morgan has done it in a small part of Wisconsin, and Suntrust Banks began charging a debit card fee in June to new customers.

With Bank of America jumping on board, it’s only a matter of time before other big banks adopt debit card fees as the norm.  With the announcement last week, BofA will be charging account holders $5 each month they use a debit card for a purchase starting in 2012.  The charge will not apply to BofA mortgage customers or to those account holders with a combined amount of $20,000.

How “The System” Works

The system is fairly simple and the concept has been around since credit cards were introduced.  Basically, every time you go to a store and use your debit card to buy something, a small fee is charged to the retailer.  These fees are known as swipe fees or transaction fees that the retailers are willing to pay to make it easier for you to spend money.  No cash, no problem, use your card.

On Oct. 1st the Durbin Amendment took effect, which capped swipe fees at 24 cents.  Before the cap, swipe fees were charged on an average of 44 cents.  Making retailers the big beneficiaries of the new regulation.  Which was the initial purpose of the amendment.

The theory is that the cap will lower retailer costs thus lowering prices in return.  Giving you and I some savings the next time we go shopping.  Though I doubt any price drop will be significant.

“The System” With Debit Card Fees

With the introduction of debit card fees, the concept of customer savings is thrown out the window.  The fees cover any difference in bank losses from the now capped swipe fees.  So using your debit card at the grocery store just got more expensive.  Use your debit card every month and the costs really add up.

There Are Alternatives

For those of you who think spending money so you can buy things is a bad idea, there are alternatives.  Though not all of them are great or convenient.

  • Credit Cards – probably not the best option out there, especially for anyone trying to cut down or drop credit card purchases.  But I bet the card companies are loving the potential increase in usage here.
  • Cash – there used to be a time, long ago, when people would go to the bank and get cash.  Maybe it’s time to start that tradition again.  I’m a bit old school, I carry cash, prefer it even.  The way I see it, if I give myself a cash allowance for the week, when the money’s gone I stop spending it.  It may not be the most convenient choice, but it’s better than paying a monthly fee.
  • Time for a New Bank – if you happen to be someone hit by the new debit card fees, not all banks will be adopting the practice.  I would guess that most of the smaller regional and local banks won’t charge any fees.  The smaller banks will be looking for a way to stand out in the crowd.  Several have been pushing free checking to draw in customers.  A big “No Fee” debit card will do the same.  You may have to give up a little convenience for the change, but the savings are worth it.

If you haven’t been hit yet by the debit card fee bonanza consider yourself lucky.  I’ll be shopping around for a better bank over the next few months.  For now I’m just waiting to see who else joins this debit card fee party.

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