NEW YORK | Bank of America’s decision to charge customers $5 a month to use their debit cards starting sometime next year has risen an enormous outrage in the US. The company’s stock price has fallen (as of October 4, earnings estimates had fallen to 19 cents a share from 27 cents on Aug. 1). Customers have complained. The bank’s website has experienced significant problems that some believe might be the work of hackers –though BofA flatly denies it.
Fox Business News’ anchor Gerri Willis even sliced up her debit card on air last week.
“BofA says they have no choice, without the fee they cannot make ends meet because of the Dodd-Frank law. But that’s not my problem. I have a limit”, Willis said.
BofA defends its decision saying it’s needed, in part, to recoup billions of dollars in costs from complying with Dodd-Frank law, which gets into effect this Saturday and caps the fees banks can charge retailers for processing debit cards from 44 cents to 21 cents per transaction.
The situation has become a political football match: Democrats have attacked the bank while some Republicans blame the administration for forcing the bank’s hand with overregulation.
But what caused the biggest controversy were Barack Obama’s comments blasting BofA’s plan. In an interview with ABC the President angrily suggested customers are being “mistreated”.
“This is exactly why we need this Consumer Finance Protection Bureau that we set up that is ready to go,” Obama said. “This is exactly why we need somebody who’s sole job it is to prevent this kind of stuff from happening. … You can stop it because if you say to the banks, ‘You don’t have some inherent right just to, you know, get a certain amount of profit if your customers are being mistreated. You have to treat them fairly and transparently.’”
Is Obama finding his voice or finding his inner populist?, as Politico.com asked its readers.
Wall Street Journal stands for BofA:
“The full weight of Mr. Obama’s Washington is coming down on a bank for making perhaps the most transparent pricing change in the history of American finance (…) These can’t possibly be the answers to a struggling economy in the U.S. and a debt crisis in Europe. As for the problems of 2008, bankers created plenty of them, though not as many as government did. In 2011, banker baiting won’t help the economy, and we doubt it will do much for Democratic election chances either”.
Anyway BofA is taking a risk, not only with how customers will react, but what its competitors will do. SunTrust and Regions have announced similar levies. Wells Fargo and JP Morgan have been testing this fees in regions for months now. Citibank is the latest to announce additional checking account fees and new balance requirements. As Josh Sanburn from Money Land puts it,
“Smaller banks and credit unions probably couldn’t have asked for a better gift from the nation’s largest banks”.
Note: Bank of America, which has already announced 30,000 layoffs worldwide, is one of the US banks currently being sued by the state attorneys general over their mortgage practices.