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New Debit Card Fees In 2011 - What Are Banks Thinking?
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New Debit Card Fees In 2011 - What Are Banks Thinking?

New debit card fees are beginning to enrage bank account holders across the United States. In September of 2011, Bank of America announced they would be charging $5 per month whenever debit card transactions were used. Many other banks have followed suit, raising the cost of banking for customers. The new debit card fees have not been popular with consumers.

But now Main Street is fighting back.

On October 15th, the grassroots organization Occupy Wall Street, aka "We Are The 99%", protested outside of Chase Manhattan bank as well as Citibank in New York. The group had advised their followers to switch all banking services to local credit unions instead of large corporate banking institutions, partly due to the banks' "unchecked greed".

Bank Protesters Arrested

While protesters were closing accounts at Citibank, the New York Police Department arrested 74 people for trespassing. Citibank claims that the police made this decision on their own, but no one was arrested at Chase where similar events transpired.

While credit unions are excited about this move, large banking firms should be worried. The long-term effects of grassroots movements like Occupy Wall Street won't be known for a while, but if these banking institutions continue their trend of creating new fees, they will lose customers, and the new fee income won't be enough to cover that loss.

Why Were New Fees Needed?

On October 1st, the Federal Reserve's new guidelines on how much banks could charge per debit card swipe took effect. The average per-swipe cost earlier this year was $0.44, but the new guidelines drastically cut that rate to a maximum of $0.21. Banks had factored that revenue into their budgets, so the income reduction hit them hard.

However, it's very obvious that customers in any subscription service (such as checking or savings accounts) hate changes. Look at Netflix for example. In June of this year, they announced plans to split their service into two separate entities. One that shipped DVDs and one that streamed videos. After months of customer backlash and hundreds of thousands of canceled subscriptions, they rescinded the decision, and the CEO made a public apology for the actions.

If the banks were struggling to survive, that would be one thing. However, in 2010, JP Morgan Chase & Co. had a net profit of $17.4 billion. When customers hear numbers like this, they are less likely to accept new charges. Taxpayers are still angry about the government bailout that many of these banks participated in and how much of that was used as CEO bonus money.

What About Credit Card Fees?

One of the interesting facts of the Federal Reserve's latest interchange rule is that it does not affect credit card swipes. Those fees remain exactly the same as before. So, while consumers may be tempted to use their credit cards instead of debit cards, they need to keep in mind that carrying even a small balance can quickly wipe away their savings compared to the new $3-5 per month debit card fees.

While companies exist primarily to create a profit, there are limits to what customers will accept. Had Chase, Citibank, and Bank of America simply raised pre-existing fees, there would quite possibly not have been a revolt of this magnitude. Unfortunately, they chose to create a new fee without offering anything new service-wise.

Ultimately, not all banks are consistently profitable, so even though JP Morgan had a great year in 2010, they haven't always been so fortunate. Their costs continue to rise as they tackle issues such as credit fraud insurance, identity fraud protection, and rising bankruptcy and foreclosure costs from customers. It's not a bad thing when companies make large profits because they will often need to use that money in the future when the sun isn't shining quite as brightly.

If you were affected this recent fee announcement, you may wish to contact your bank to let them know that you are unhappy with the arrangement. Threatening to cancel your account may make companies reluctant to take similar actions in the future. Switching to a local credit union for your primary checking or savings accounts may actually be your best option regardless of how the new fee debacle plays out.


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