Debit card fees cancelled
December 2, 2011
Proposed monthly usage fees for debit cards, which were proposed by Bank of America and other financial institutions, have been abandoned after intense public backlash.
The bank fees, which were developed to compensate for lost revenue as a result of new banking regulations, were vigorously opposed by students and other debit card users. As a result of the banks’ abandonment of the fees, students and debit card users feel empowered.
Elaine McBeth, economics lecturer and associate director of the Thomas Jefferson Program in Public Policy at the College of William and Mary, weighed in on the reasons why the banks deserted the debit cards fees.
“They dropped the fees likely because of protests and the fear of clients leaving them for credit unions,” McBeth said.
Assistant professor of economics Till Schreiber agreed that public backlash was a primary motivator for banks to remove these new fees. He also postulated that these fees may have been a ploy by the banks to influence policymakers — which backfired.
“Many people, and I believe rightly so, were very angry at the big banks who … were seen as being too greedy,” Schreiber said. “But [the fees] were also something of a blackmail tool, a message from the banks to the government saying, ‘If you pinch our funds, we will make up our funds elsewhere in a manner that could hurt the public opinion of policymakers [who the banks blamed for the necessity of the fee].’ But this move to possibly influence policymakers became a public policy nightmare.”
McBeth also questioned the alleged necessity of the banks to establish these fees.
“The real question was: do the banks really need these fees to survive or were they pursuing an opportunity to make extra profit?”
McBeth said. “Potentially, to make up for the loss of money, the banks could have staffed less bankers or staffed them less frequently because the users of debit cards tend to bank electronically. They had other options.”
McBeth and Schreiber both agreed that students are more likely to use debit cards than other consumers, so if the fees had continued, students would have been disproportionately negatively affected.
“Students use debit cards more, don’t tend to carry cash on them, and make small, frequent purchases,” McBeth said. “[The fee], in a sense, was a regressive tax on the lower income folks — like students — who were disproportionately charged for their primary means of using their money. Removal of these fees means now that the students may be disproportionately benefitted … because alternate [mechanisms] for the banks to gain money is likely to affect them less.”
Schreiber agreed that students would have been unequally affected, but he believed the banks would probably have waived debit card fees for students to capture their loyalty.
“If the fees had stayed, banks likely would have waived fees [for students] to attract them away from their competitors, the credit unions,” Schreiber said. “Because college graduates are more likely to earn more money in their lifetime, the banks would have wanted to secure these students as lifelong clients early because you’re more likely to divorce your spouse than divorce your lifelong bank. Keeping student loyalty ends up being profitable for banks.”
It appears this move by the banks to undo some of the damages to client relationships is working, and students appear to feel less alienated and used by their banks.
“I am very happy that the banks decided to drop the fees,” Sukyoung Kim ’13, an exchange student and SunTrust customer, said. “It makes me more eager to continue a relationship in the future with them.”