The banking industry in the United States is reeling after three years of mortgage losses and a wave of new regulations surrounding debit cards and credit cards. Now, some of the nation’s largest banks are eliminating free services and looking for new sources of revenue. Banks say that they need the fees to recoup losses that are the result of new federal regulations that will be enacted on Saturday which limit the fees that merchants can charge for debit card transactions.
Bank of America made a significant splash this week when it announced that it was planning on charging a $5.00 monthly fee to customers that make use of their debit cards and other banks are expected to follow Bank of America’s lead. Bank of America disclosed its plan to charge debit card fees nationwide early next year in a memo to its senior staff on Thursday. The fee will be triggered when a consumer uses a debit card to make a purchase, however the fee will not be triggered by ATM transactions. The company said that the new debit card regulations will eliminate $2 billion in revenue from the company each year.
Several other banks including JPMorgan and Wells Fargo plan on testing fees in some of their markets. Regents Financial has already announced that it would charge a $4 monthly debit-card usage fee on certain accounts on Oct. 1. A number of banks have already eliminated or reduced debit-card rewards programs and added monthly fees for checking accounts. Others have raised minimum balance requirements to avoid paying certain fees.
New government regulations that limit debit-card swipe fees are expected to cost banks an estimated $6.6 billion in year per revenue. The fee limits, which will cap fees at $0.24 per debit card transaction on banks with more than $10 billion in assets, were finalized by the Federal Reserve in June. Banks currently charge an average of $0.44 per debit card transaction.
Consumers have reacted extremely harshly to the news. A large number of consumers, including those involved in the Massachusetts banking industry, are anticipated to move to smaller local banks that have more competitive fee levels.