Bank of America risks reputational capital with debit card fees

Bank of America’s plan to begin charging customers $5 a month for using its debit card has been met with resistance from citizens and members of Congress alike. In fact, there is some reputational capital at risk as a result of this kind of charge, says a banking expert at Washington University in St. Louis.


“I think there is some danger of substantial loss of good will – reputational capital,” says Stuart I. Greenbaum, PhD, former dean of WUSTL’s Olin Busines School and Bank of America Professor Emeritus of Managerial Leadership.

Beginning in 2012, Bank of America will charge customers $5 a month for using their debit card, whether they make one transaction or dozens.

This is in response, Greenbaum says, to the Durbin Amendment to last year’s Dodd-Frank financial reform bill.

That amendment reduced the amount banks can charge merchants as “interchange” fees for debit cards from an estimated 44 cents per transaction to 21 cents, which analysts say could cost the industry as much as $5 billion annually.

“You can view this fee as a replacement,” Greenbaum says of the monthly debit card charge. “Instead of charging the seller of goods the fee, which they presumably incorporate into the price of the goods, the fee is now levied directly on the user of the card.”

Greenbaum, former director of the Banking Research Center at Kellogg School of Management at Northwestern University and noted banking and finance expert, says one way to view the fee is that what once was hidden to the customer is now much more visible.

“The customer will act on that perceived fee,” he says.

“This should benefit competitors to the large banks that charge the debit card fee. The main competitors are small banks and credit unions,” Greenbaun says. “Credit unions typically operate at lower costs so the typical customer could walk into a credit union and find a debit card fee that’s lower than the one at Bank of America.”

Bank of America is not the first to levy the charge, or at least begin thinking about it.

Region’s Financial Corp. has begun charging customers a $4 monthly debit card fee on certain accounts. JP Morgan Chase and Wells Fargo are testing similar fees in several states.

“Bank of America is not the leader here,” Greenbaum says. “They are following what Region’s and others have already done. However, Bank of America is a national institution, the others are regional. Bank of America may face greater competitive implications than those regional banks.”