Consumers win, banks lose

Consumers win, banks lose

November 2nd, 2011 in Opinion Times

It's a resounding triumph for the little guys. Big banks won't admit that, of course, it, but the nation's consumers clearly have won a significant victory over the nation's largest financial institutions by forcing them to roll back their plans to charge a monthly debit card fee. Once, banks simply ignored consumers in their reckless pursuit of profits. No more. Consumers no longer will stand for it.

Customer outrage and the concomitant loss of business forced the banks to give up plans to charge the fees. Precise numbers are hard to determine, but anecdotal evidence strongly suggests that banks have been inundated with complaints and that many customers have moved accounts. Others started paying in cash. Credit unions, which do not charge the fees, were a major beneficiary of the protests.

The movement of money and the public lashing caught the attention of Bank of America, J.P. Morgan Chase, Wells Fargo, Regions, First Tennessee, Sun Trust and other national and regional banks. They've ended debit card fees, generally $3-$5 monthly, and say they have no plans to resurrect them. That an admission of defeat rarely heard from bankers more accustomed to imposing their will on consumers.

The banks initially said debit card fees were necessary because financial reform legislation that goes into full effect next year cut the bank's fee (paid by merchants) for each debit card transaction from 44 cents to less than 25 cents. Given the vast number of debit card transactions, the reduction would cost the financial institutions billions in revenues and profits. Bankers figured the fees would attract little attention and become a new profit center. Not so.

Consumers quickly rebelled, pointing out that the fees defeated the purpose of a debit card, which allows people to use their own money for purchases rather than buying on credit, and having to pay hefty charges for carrying a balance. Moreover, consumers said, it was unfair to charge individuals a hefty fee for the use of their own money.

Their message was heard. One by one, the big banks that together control a quarter or more of the U.S. market backed down; other institutions followed. Some admitted that consumer outrage had compelled them to end the fees. Others refused to face the truth. One spokesman said his bank ended the fees in response to market conditions, not customer complaints. It would seem, though, that public condemnation of the fees accompanied by an exodus of customers certainly should count as "market conditions."

The new regulations will take a chunk out of banks' bottom lines. Though the industry will still make billions without the debit card fees, it won't give up profits without a fight. Bankers will continue to seek ways to make up lost profit from the pocketbooks of consumers. New fees and charges on services, including checking accounts, are in the offing. The battle on debit card fees might be ended, but consumers' larger war with avaricious banks over fees likely will continue for some time to come.