Just when jaded consumers thought they had "seen it all" with big bank fees, Wells Fargo started a new trend--debit card fees. Beginning in October, the mega-bank plans to "test" a $3.00 monthly debit card usage fee in Georgia, New Mexico, Nevada, Washington and Oregon. JPMorgan Chase (Wisconsin) is toying with something similar as well.
The new fee arrives on the heels of recent financial regulations being imposed on the industry as a way to offset lost income. The Durbin Amendment limits the amount of interchange income a financial institution can glean from credit and debit transactions, which has some financial institutions scrambling to recover.
While the credit union industry has watched this evolve, most credit unions are searching for other ways to make up for lost income. However, many credit union executives understand the path Wells Fargo and other mega banks have taken.
Mike Corwin, AVP/PR & Business Development at OSU Federal Credit Union ($695 million, Corvallis, OR) says, "We assume they (Wells Fargo) are responding to their business needs. Instead, we prefer to keep the focus on our membership and how we can best provide them unsurpassed service. Our goal is to maintain the free checking/debit accounts our member owners have come to expect as long as we are able to recoup our cost to facilitate such a staple and valued program."
Greg Barnes, SVP/Marketing at Nevada Federal Credit Union ($678 million, Las Vegas) says that the bank shouldn't be faulted for trying to replace lost income and that regulators are pining financial institutions up against a wall.
"The new federal mandated pricing structure for the larger banks won't even cover their cost of offering the product, much less cover fraud losses," he explains. "It's another example of how federal regulation designed to protect the consumer ends up doing the exact opposite."
Credit Unions Are Hesitant to Impose Debit Card Fee
Dave Willis, SVP/Debit Card & Fund Services at Navy Federal Credit Union ($46 billion, Vienna VA) says that the writing has been on the wall for quite some time and his credit union was at the forefront of push back of the Durbin Amendment. "We knew US consumers were going to be hurt by this regulation," he says. "This (debit card fees) is not a surprise and although we've been publicly vocal about our feelings, we knew this would happen."
"However, we are looking at other options to imposing a debit card fee," Willis continues. "As a credit union, our goal is to deliver low rates on loans and high rates on deposits in addition to free checking and no fees on debit cards."
Dan Sandweiss, VP/ Marketing at Kirtland Federal Credit Union ($517.3 million, Albuquerque, NM) wonders if the reason Wells Fargo is "testing" this program in certain markets because overall repercussions won't be as great. "If it fails, it's only an error on their balance sheet instead of something major."
Like Willis, Sandweiss says that his credit union has no plans to impose a debit card fee. "It's goes against our principles that govern us and we only make a large enough annual profit to effectively serve the members. While we won't exploit our members, but need to impose fees that will return value to the member and the credit union."
Sandweiss cites technology as an example. "Technology is constantly evolving so you need to update your offerings in order to deliver the best product to the member. Updates take money, but you have to find logical ways of generating that income that isn't to the member's detriment."
Member Rumblings are Evidence that Debit Card Fees May Fall Flat
As Wells Fargo and other multi-nationals test new fees, consumers are vocal about their feelings. Barnes says that his credit union has experienced a different type of new member influx.
"Sure, we have new members switch to us all them time because they are tired of high banks fees," he says. "But this year we've seen more new members switch over to us from banks to refinance their higher-interest auto loans with us at lower rates. We've been aggressive in trying to steal auto business and help save locals sometimes hundreds of dollars each month off their payment - which is very important in this economy."
Willis says that the consumer who will be hit the hardest by the fee is the one who can't afford it. "We are starting to hear from the members about new fees being imposed by other financial institutions. Unfortunately it will be the consumer who can afford this fee least that will suffer the most. The more affluent consumer will either just pay the fee or increase their minimum balance in order to have the bank waive the fee."
Willis adds that Navy Federal's value proposition, like many credit unions, is to serve a wide variety of members. "Those who cannot afford the fees, like our young active military members, should seek credit union membership. We continue to offer free ATMs, free debit cards...and I don't see this changing."