Monday, October 10, 2011

In Defense of Debit Card Fees

Seems that Bank of America stirred up a hornet's nest by charging folks $5/month for using their debit cards. I don't see anything wrong with this. But, before you string me up in effigy, it's only because I don't see Bank of America as the cause of this fee. No, the anger is misplaced. The blame really should lay on the shoulders of Congress.

Congress passed some laws limiting how much banks can charge in interchange fees. Which, frankly, seems un-American to me. Why should Congress be getting involved in how much a business can charge for their services? What next? Create a law that pizza places can't charge more than $5 per pizza?

Imagine what would happen if such a law were passed. Some pizza places might just go out of business. Or.... they might jack up the prices of other products to make up the difference and make enough to still stay in business. But... then what if people just start buying the pizza and avoiding all of those other expensive products? Well, instead of jacking up the prices of other products, perhaps adding new fees for a pizza can make up the difference instead. You know, like a "pizza preparation fee." They'll sell you the ingredients for $5, but if you want them to put all of those ingredients together into a pizza, well, that'll be another $5.

You might think comparing pizzas to debit cards is silly, but basically, this is exactly what happened. Banks paid for stuff like "free" checking and debit cards with money from those interchange fees, and because of an act of Congress, they can't anymore. They have to make money in other ways--by charging for other fees or increasing already-existing fees. Banks warned this would happen if Congress went through with their meddling, and by golly, that's exactly what's happening.

People have always been paying those debit card fees--they were just more hidden from view. You paid for them in higher prices on the goods you bought with them. It was built into the price of the goods and services you bought. Now they're separated, itemized, as it were.

I'm kind of surprised that Bank of America hasn't been better explaining all this, though. Really, it's been a PR disaster for them, and it seems like they're response has been nothing more than, "Tough, live with it." They really need to do a better job explaining why this new fee has been created in the first place--Congress made them do it. =)

Bank of America seems to be the whipping boy for this issue, but all the major banks are moving in this direction, and I'm sure more will continue to do so. It's not a bank-specific problem--it's a banking-specific problem.

And since we're talking about banks, here are a couple of my own thoughts on the subject:

If you aren't using a credit union, WHY NOT?! For those Occupy Wall Street folks complaining about banks making too much money, HELLO, use a credit union! It's essentially a non-profit bank! You get better rates, fewer fees, and more bang for the buck. It's amazing to me that for-profit banks can even stay in business against credit unions. And for those people who choose to use a traditional for-profit bank, well, it's America, and by golly, you have every right to squander your money on poor service. I'm not going to go in the streets and protest it, though. =)

And, if for some reason you can't join any credit union, well, I do have one account with a for-profit bank I've been quite happy with you might also consider: ING Direct. They're an online-only bank which lets them save on costs like, you know, buildings and tellers, and other expensive stuff that brick-and-mortar banks still have to deal with. It feels more like a credit union than a for-profit bank, but of course, the catch is that you have to do all of your business online. =) For most people, though, I don't think that's a big hurdle to clear. There are plenty of free ATMs around to get money out of, you can direct-deposit your paychecks into the account, and really, what else do you need? I have a credit union back in San Luis Obispo that I like, but it's a little distant for me to use regularly nowadays. I started online banking when I moved to Oregon and continue to use to here in Washington and have been happy with it for years. =)