Many customers will soon have to pay their banks to use their debit cards.
As a result of the Dodd-Frank Act, the cost of debit card payment services has shifted from retailers and merchants to consumers, said David Oliver, a spokesman for the Georgia Bankers Association.
Merchants and retailers pay banks and card networks for the ability to process debit and credit card transactions. The law includes an amendment that requires the Federal Reserve to set a fixed maximum rate for each debit card transaction for large banks and card issuers, Oliver said.
The rule applies to banks with $10 billion or more in assets. The Federal Reserve’s price cap rule goes into effect Oct. 1, he said.
“Banks are reacting to replace revenue and recover costs that have been regulated or legislated away from them. Some are choosing to begin including a monthly charge for customers to use their debit card. Right now, this varies greatly by bank and even by account type,” Oliver said.
A FEW WEEKS AGO, Wells Fargo announced that its debit card users would be charged a $3 per month flat fee per checking account if customers use their card to make purchases. The monthly charge will start in October. Georgia is the only state in the Southeast selected for Wells Fargo’s pilot program, said spokeswoman Jamie Dexter.
“If you make one purchase or 100, the fee is $3 a month. The marketplace has changed a lot in the last year or so, which is why this is happening. It’s something that’s really impacting all banks,” Dexter said.
However, the Wells Fargo Crown and Crown Classic accounts are exempt from the debit fee. Customers can also avoid the fees by withdrawing cash at the bank’s ATMs or using a credit card, she said.
Regions Bank plans to charge a flat, monthly fee of $4 for debit card “point of sale usage,” effective Oct. 1. It’s still free to use an ATM, said Lisa Scott, marketing manager in Georgia and South Carolina.
“That fee will only be charged one time per month, regardless of the number of times the debit card is used or the number of cards tied to the account. It’s only charged during months when you use the debit card,” Scott said.
However, customers can avoid paying the fee if they have certain types of accounts, she said.
Bank of America is not “testing a debit fee at this time” among its recent pilot programs, but it is “evaluating pricing across all payment products,” said Christina Beyer Toth, media relations manager for the Southeast.
In June, SunTrust introduced some new checking accounts, including the Everyday Checking account with a $5 monthly fee for unlimited debit card purchases. Clients with previous checking accounts will be “moved into one of the new offerings in November,” said spokesman Hugh Suhr.
“The debit card usage fee is per Everyday Checking account, not per card. If a client chooses not to use the card for purchases during a particular month, there is no monthly usage fee. There is no fee for using the card at a Suntrust ATM,” Suhr said.
The fee does not pertain to any of the bank’s other checking accounts, but it will be incorporated into the student checking account in March 2012, Suhr said.
EVEN SOME CREDIT UNIONS are debating whether to charge debit transaction fees.
“At the current time, we do not have a plan to charge a fee for debit cards,” said Ed Templeton, president and CEO of SRP Federal Credit Union. “However, we are evaluating it, and in the future, we might have to implement a charge depending on how the implementation of the processing ends up shaking out. It is a real travesty of the free marketplace that Congress felt like they had to regulate and pass a law as how much somebody could charge for their product rather than letting the marketplace establish a fair and equitable price.”
Templeton said that merchants had agreed to the pricing, which had been in place for years. He thinks they are taking advantage of the consumer movement in Washington D.C., he said.
Frank Thomas, president of Security Federal Bank, said his bank hasn’t made a decision on whether to charge debit fees.
“At the present time, we don’t think so, but that’s still an open subject,” Thomas said. “When they (government) tell you how much you can charge, it really takes away the free market. Part of the issue on that was that we’re having, at times, substantial losses on these debit cards due to fraud. There’s not many ways that a bank can protect itself from these fraudulent means.”
Because debit cards can be used without a PIN, thieves can use the cards over a matter of weeks or even make fake cards and “it could run up into thousands of dollars just on one stolen ID number,” Thomas said.
A bank could lose $8,000 to $15,000 in a week or two, he said.
“In order for us to protect ourselves, that’s why some of these banks are going to fee the system. Before, we were able to...charge enough to offset those losses, but now it’s just a big question mark,” Thomas said.
Georgia Bank & Trust, First Bank of Georgia, Augusta First Bank & Trust, First Citizens Bank, Queensborough National Bank and Savannah River Banking Co., don’t plan to implement debit card fees.
“We just rolled out a totally free checking account. It has no service charges and no fee for the debit card,” said Dan Blanton, president and CEO of Georgia Bank & Trust. “That’s just the direction that we’ve chosen to go in – to have a totally free debit card and offer a totally free account,”
Across other types of checking accounts, Georgia Bank & Trust doesn’t plan to charge debit fees, he said. And Blanton hopes to attract new banking customers.
“We think it’s a good opportunity with all that is going on to attract some good, local, additional customer business. We’re one of the larger banks in this market, and we just felt like it was a good opportunity for us to continue to grow and put a product out there that the consumers want,” he said.
Still a young bank, Savannah River Banking Co. could benefit from not charging debit card fees, said CEO Randy Potter. .
“We currently don’t have any plan to increase any fees,” Potter said. “We’re still new. We’re only four years old. So we’re doing everything we can to increase our market share and add new clients and try to be a friendlier place to bank.”
GEORGIA’S OWN CREDIT UNION and CSRA Federal Credit Union don’t plan to add debit activity fees.
“We always try to do what’s in the best interest of our members, and offering free checking and no fees on our debit card is something that’s important to us and part of positively affecting the prosperity of our members,” said Allison Kimbrell, vice president of marketing and advertising for Georgia’s Own Credit Union.
Georgia’s Own Credit Union has less than $10 billion in assets, so it is exempt from the full interchange fee impact, Kimbrell said. She anticipates an influx of new members.
“We’ve already seen that a little bit. We’ve had people coming into our branches, and we’ve received additional online applications as a result of the bank customers who are unhappy about these new fees,” Kimbrell said.