No Debit Fee for Bank of America—Will It Just Accept a $2 Billion Loss?

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The company has responded to customer outrage over its proposed $5 charge for using a debit card, but that doesn't mean the bank will simply accept a loss instead

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America has spoken, and Bank of America has listened. After proposing a new $5 monthly fee that some its customers would have to pay for using their debit cards, the bank has officially killed the idea. Customers who feel like celebrating might want to hold their applause: this fee may be dead, but the bank could just replace it with another. When choosing between lost revenue and making customers happy it may find a better way to strike a balance.

As a quick refresher, Bank of America didn't create this fee on a whim. It was a direct result of the 2010 Dodd-Frank financial regulation bill. One part of the legislation cuts the magnitude of the debit interchange fees paid to some banks by retailers. Rather than create a new hidden fee in response, Bank of America decided to be perfectly transparent. It intended to offset $2 billion in lost debit card revenue by charging customers directly.

On some level, such transparency should be applauded. After all, the bank could have created more sneaky, hidden fees instead. But Americans hate paying more for cheap services that they have come to love. Just ask Netflix. So customers' negative reaction was swift, sharp, and ultimately fatal. Here's the news from Bank of America's press release:

"We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee," said David Darnell, co-chief operating officer. "Our customers' voices are most important to us. As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so."

Notice what the bank doesn't say. It doesn't assert that it will never change any fee of any kind to make up for this few billion dollars in lost revenue -- it just says that it won't charge a debit usage fee. At this time, it has two options: it could figure out a different way to charge customers more or it can simply shrug and take the loss that new financial regulation creates.

The likelihood of the bank accepting Congress cutting out such a big chunk of its revenue isn't great. Here's why:

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Bank of America needs all the revenue it can get. Shareholders have already become very wary about its future. The bank's Countrywide acquisition saddled it with huge mortgage losses. Now it has lots of litigation risk. Despite its strong retail banking business, a number of obstacles remain in its path. Does the bank really want to tell shareholders that it will just take a big loss instead of charging its customers a little bit more for a business that Congress has made less profitable?

Don't count on it. When it comes to customers and shareholders, the bank can be a little bit craftier about striking a balance. Its debit fee was a poorly calculated strategy. It was new, so it prompted a big reaction. Instead, it could increase the fees it already has by pushing them up a little bit here or there until it has made up the lost revenue. Some customers might notice, but their collective reaction will be softer and spread out over time. Alternatively, the bank could begin charging more for other related services, like checking.

To be sure, the bank has plenty of ways to collect more revenue from its relatively healthy retail business. While it could theoretically choose not to do so, lots of shareholders will be quite unhappy if it just shrugs off a few billion dollars in lost revenue.

Image Credit: REUTERS/Lucas Jackson

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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