Bank of America may have hoped it could quietly slip a US$5 fee past its customers. If so, it was woefully wrong.
This week, the bank announced it would charge debit card customers a $5 monthly fee when they use their cards to purchase goods. The bank pointed to new financial regulations as a reason. Customers, for their part, quickly did the math: The bank would be docking them $60 a year to use a card that the bank had urged them to adopt in the first place.
The total haul for Bank of America is a reported $3 billion a year — a number that doesn’t sit well at all with a public still irked by the mammoth-sized financial bailouts that banks and other institutions received in 2008.
You Can Avoid It
Bank of America is making an effort to show consumers how they can avoid the fee.
“We want customers to understand what this means for them, so we are explaining the impact and the value and convenience the card offers, and how to avoid the fee if necessary,” spokesperson Betty Reiss told CRM Buyer.
The fee is only levied if the card is used for a purchase.
“If you don’t use it to make a purchase during the month, then it won’t be levied,” Reiss said.
That explanation gives little satisfaction to at least one member of Congress.
“After years of raking in excess profits off an unfair and anti-competitive interchange system, Bank of America is trying to find new ways to pad their profits by sticking it to its customers,” said Sen. Dick Durbin, D-Ill.
It was legislation sponsored by Durbin that prompted imposition of the fee, according to Bank of America. Briefly, it led to a new law that followed a long, drawn-out fight — with retailers lobbying heavily for its enactment. The law reduces the money banks get when consumers pay for something using a debit card.
How Big the Backlash?
A quick glance on Twitter and other social media indicates how customers feel about the fee. (Let’s just say Durbin’s tone is among the mildest.) How angry are they, though? Enough to go through the trouble of shutting down one bank account and setting up another elsewhere?
“Some Bank of America customers will likely move their accounts immediately,” predicted Joel J. Ohman, a certified financial planner and founder of the website Credit Card Chaser.
“Others will be so entrenched that the switching costs outweigh the new debit card fee costs,” he told CRM Buyer.
“Other banks who have no doubt been contemplating additional sources of revenue through fees will be watching consumers’ reaction to the new fees very closely. This means that this issue should be important not only to Bank of America customers, but all customers of all banks.”
Indeed, it has been reported that several other large banks, including J.P. Morgan Chase and Wells Fargo, are testing or plan to test similar fees in some states.
More Choices for Consumers
Even if all banks institute this fee, though, consumers still have a number of new financial options from which they can choose, noted Benjamin M. Dunay, founder of Sixthree Technology Marketing — a client who’s thinking of bolting from the bank.
“I have started three companies and have used Bank of America for my small business banking almost exclusively,” Dunay told CRM Buyer, “but we are migrating away from it, turning to other banks’ services to avoid costs and fees and receive better service.”
The $5 fee doesn’t help matters.
“While a $5 debit card fee is not that high in the grand scheme of things, there is no correlated benefit received by the ever-increasingly discriminating consumer,” Dunay pointed out.
“For example, I am now less tied to Bank of America than I have been in the past because of new non-bank services available to me in different industries. I use Square for processing credit card payments. Square’s service is free, requires no clunky machine, and I can run it from my iPhone or iPad. Bank of America’s credit card service costs more money, requires a separate machine, and is not as user-friendly.”
Also, comparable — and cheaper — online payroll services are available, Dunay noted, citing Intuit as an example. “Bank of America outsources their payroll services, but the point remains that I have one less dependency to worry about if I want to switch banks and leave BoA.”
The Netflix Example
The bottom line is that Bank of America is in trouble with this move, said Scott Sobel, president of Media & Communications Strategies.
“I predict they will experience the same kind of consumer retribution as NetFlix just weathered after the bomb they unexpectedly dropped on their customers,” he told CRM Buyer.
“Some of that defection could be mitigated if other banks follow suit, but history shows it is many multiples as hard to win back customers as it is to keep them. The same is true for winning new customers. All of this could have been avoided if Bank of America would have created an information campaign in the media and through direct mail or email to customers preconditioning them for the new charges and explaining why the new charges are being levied.”
Netflix, ironically, came to a similar conclusion after droves of customers left in disgust over a price hike that came with little warning or explanation.