Bloomberg News

Consumers Will Switch Banks Over Debit Fees, Survey Finds

October 19, 2011

(Adds details on Wells Fargo fees and comments from Javelin analyst starting in seventh paragraph.)

Oct. 19 (Bloomberg) -- About 30 percent of U.S. consumers said they’d leave their banks over fees for using their debit cards, according to a survey by the Research Intelligence Group.

About 43 percent said they’d switch to paying with cash or credit cards if their bank implemented charges, while 13 percent said they’d pay the fee if it was “reasonable,” according to the survey released yesterday by the Fort Washington, Pennsylvania-based consulting and market-strategy firm.

“There’s a lot of consumer discontent within financial services and I think there’s a lot of frustration,” said Rob Kaplan-Sherman, president of the services division of the Research Intelligence Group, a unit of Montreal-based Leger Marketing. “People express that they’re going to change their behavior, and that includes changing how and where they bank.”

The survey comes as the largest banks, including Bank of America Corp., are testing or planning to start charging fees of as much as $5 a month for consumers who have a debit card or use one for purchases.

Low- to middle-income consumers are more likely to pay the fees, according to the survey. About 22 percent of those consumers, defined as those households earning $35,000 to $49,000 a year, would be willing to pay the fee, compared with 14 percent of consumers whose households earn $100,000 or more.

“Less-affluent populations often feel like they have fewer options at their disposal,” Kaplan-Sherman said.

Attract Business

Bank of America, the nation’s second-largest bank by assets, next year plans to start charging some debit-card users a monthly fee of $5 if they use the cards for purchases. JPMorgan Chase & Co. began testing a $3 monthly fee for certain customers with debit cards in two states in February. Wells Fargo & Co. this month began testing a $3 monthly debit-card usage fee among certain customers. U.S. Bancorp, the nation’s fifth-largest commercial bank, said today it has no plans to implement a fee for customers’ debit-card use.

The new debit charge may attract business by encouraging customers to use more of the banks’ services in order to avoid the fee, Brian T. Moynihan, chief executive officer of Bank of America, said in a conference call yesterday.

Florida state Representative Jeff Clemens this week offered a bill that would ban banks, at the state level, from charging customers for using or having a debit card.

Representative Brad Miller, a member of the House Financial Services Committee and a Democrat from North Carolina, earlier this month introduced a bill that would prohibit banks from imposing fees on people who close accounts.

‘Arbitrary’ Charge

Banks should drop their plans to add debit fees and consumers should consider changing banks if they don’t, the Consumers Union said in a press release yesterday.

“Consumers should not be required to pay a costly fee that appears to be arbitrary,” said Norma Garcia, senior attorney for Consumers Union, in a letter to Bank of America’s Moynihan included in the press release. “This fee is especially egregious, imposed as it is during a weak economy, when many consumers are struggling to keep afloat.” Consumers Union is a nonprofit consumer advocacy group based in Yonkers, New York, and the publisher of Consumer Reports magazine.

Opening Accounts

Consumers who say they’ll switch banks may run into problems. About 53 percent of Americans who applied to open a checking account online this year succeeded in opening and funding an account, according to a study released yesterday by Javelin Strategy & Research, a market-research firm.

Broken links and a lack of information on bank websites may have contributed to some consumers’ inability to open an account, the survey said. The remaining 47 percent were either unable to fund an account, abandoned the process or said their applications were rejected.

“Consumers are much more likely to complain than to actually switch,” said Mark Schwanhausser, senior analyst for Pleasanton, California-based Javelin.

About 7 percent of consumers changed banks in the 12 months through March, compared with 12 percent during the same period the year before, he said.

Since Oct. 1, banks may receive no more than 21 cents per transaction plus 5 basis points of the purchase price for debit- card transactions, and may collect an additional 1 cent per transaction if they adhere to certain fraud-prevention measures, according to a rule issued by the Federal Reserve in June. The rule will cost the industry about $8 billion annually in lost revenue, according to Bloomberg Government. A basis point is 0.01 percentage point.

Low Awareness

About 10 percent of those questioned said they believe they currently pay a monthly fee on their checking account, the survey from the Research Intelligence Group said. By comparison about 55 percent of non-interest checking accounts charge fees, according to a study released last month by Bankrate.com, the online consumer-rate provider.

“There’s such a heightened level of awareness of fees right now that it’s become a topic of great sensitivity,” Kaplan-Sherman said. “But generally speaking, consumer awareness of fees is very, very low.”

The Research Intelligence Group surveyed 1,000 U.S. adults online in October.

--With assistance from Laura Marcinek, Margaret Collins and Charles Mead in New York and Simone Baribeau in Miami. Editors: Rick Levinson, Alexis Leondis.

To contact the reporter on this story: Elizabeth Ody in New York eody@bloomberg.net

To contact the editor responsible for this story: Rick Levinson at rlevinson2@bloomberg.net.


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