Bank of America Corp (NYSE: BAC) announced that new financial reform legislation could cost the bank about $2 billion per year from its card service business, suggesting that the bank will charge new fees to retail customers to offset the lost revenue.
Shares of Bank of America Corp (NYSE: BAC) fell by 17% last week after reporting disappointing earnings and making the jaw-dropping announcement that the bank would likely see a multi-billion dollar hit from the financial reform legislation. The Charlotte-based bank said that the new limits would cost between $1.8 billion and $2.3 billion in annual revenue from its card service business. Interchange fees earned banks $50 billion in revenue last year, according to the office of Senator Dick Durbin.
The financial reform package which recently worked its way through congress included reform which will limit the fees which banks can charge merchants which accept credit cards. The new rules which limit the fees are known as the Durbin amendment. The final version of the legislation is expected to be signed by President Obama this week.
The impact of the financial reform legislation will be most visible in the bank’s consumer finance unit, which accounts for more than half of the company’s revenue and impacts more than 55 million customers. The legislation places new restrictions on transaction fees that bank’s can charge on debit card payments, which are expected to cost the bank about $2 billion in annual revenue. The company’s decision not to charge overdraft fees will likely cost the bank an additional $1 billion per year in revenue.
CEO Brian Moynihan didn’t provide much detail in the company’s earnings announcement how the bank plans to make up for the lost revenue and added one-time costs. However, the company will likely seek new account fees from retail customers to make up for the losses. This could include increased monthly or annual account fees for customers or higher interest rates for credit card customers.
