On Friday a reporter called me asking for an immediate interview on my thoughts on the new debit card fees. A camera crew was in my office within an hour. Thankfully, I happened to be wearing a good suit that day for a different purpose! Here is the accompanying news story article.
Oh my goodness people are upset! And I don’t blame them. It is now going to cost many of us $3-5 dollars a month to use our debit cards. Yes- that’s right—paying to access our own money…. How did this happen? Well, remember all those federal regulations that went through congress because of all the bad banking practices? This was an unintended consequence.
Simply put, a new rule limits the fees that banks can charge merchants every time a consumer uses a debit card to make a purchase. (These are called “swipe fees”.) They are also capping credit card fees, which is good. The rule, known as the Durbin amendment, is part of the Dodd-Frank financial overhaul law. However, now that the banks can’t collect as much money from merchants, they are trying to make up this lost income from consumers! Hence- debit card fees.
Yes, I am upset about this. But it’s not the $5 bucks a month I’m upset about. It is my fear that people will stop using their debit cards to avoid these fees and turn to their credit cards. And guess what—if you do that, banks will make even more money.
My number one concern is that if consumers switch to using their credit cards even more, they will overspend and drive their credit card debt higher. All the evidence unanimously points to the fact that people spend about 20% more money when they buy things on credit. This is for several reasons. Think of it this way: if I know the money is coming straight out of my checking account, I will think more carefully before I buy the $300 dollar leather boots at Nordstrom. But if I put them on a credit card, well- even with the best intentions of paying it off in full, I’m still more prone to spending the money, since I won’t really have to deal with it until next month.
And the reality is, 50% of consumers don’t pay their cards off in full. So if they start using their credit cards more, they are hurting themselves and simply making the banks even happier.
What else can be done? Well, you can switch to a credit union to avoid the fee. And not all banks are doing debit card fees. Also, some banks will waive the debit card fee if you have a premium account of some kind. Check with your bank.
Yes, it’s always best to shop around, and certainly now may be a time to switch to a credit union or different bank. But carefully weigh this. My own bank is likely going to institute a debit fee this month. However, I’ve been with my bank for 20 years. I may get them to waive it for me. And besides, I receive many perks for being a long time customer. I’m not going to leave a 20 year relationship that has served me well when it came to my mortgage etc.
The bottom line is that you are in far more danger of going into debt and staying in debt when you use your credit card. So while I am not thrilled with my debit card fee, it’s far better than being tempted to overspend. Don’t let anger at your bank lead you down a dangerous road of increased credit card usage.
Hi Mikelann! This is a great perspective – debit cards are a secure way to pay “with cash” and are great at keeping me “on the wagon” with spending.
Instead of putting up with fee nonsense, fire B of A and switch to a local bank that appreciates your business! It’s a pain to switch, but why give your business to banks that clearly don’t care about keeping you as a customer? I can truly can say that I love my bank. They offer great service – and actually know my name when I stop in (amazing!).
Thanks – great post! 😉
Thanks Mary! Yes, I find this is about trying to keep perspective. AND– I have to remind people– your bank works for you! So you’re right– they better appreciate you!
CASH – Return to using cash for all of your everyday expenses. When you have to pull cash from your wallet, THEN put the receipt IN your wallet – you will acquire some CONSCIOUSNESS about spending money. – Retail businesses and Banks, lull us into complacency about our money, by ENABLING us to spend more than we should, without being conscious of what enormous financial harm we are doing to ourselves. – TURN IN all Debit cards NOW. Switch to Cash. — Be smart about your money – It is not truly sophisticated to allow yourself to be manipulated into thinking that you MUST have a debit card, or that you MUST have all of the little, expensive treats that destroy your financial security. – – I quit all debit cards thirty years ago – You can do it too. – My home is paid for, my car is paid for, and I have money in the bank BEFORE I charge anything, so I owe nothing on credit cards, nor on revolving store accounts either. – Life is much more peaceful, when you never have to struggle with meeting monthly payments. Buy your house on time – That is all. Pay off everything else by the end of the month. – Let someone else stimulate the economy with their wild spending, and high indebtedness – Not YOU. Best Wishes “Granddad”
My daughter reminds me that even those who use cash, generally use the Debit card to get the cash from their ATM – ¿Question? – Can “the” card be limited to ATM use only? – That would help – “Granddad”
Charging for debit card usage is despicable. What do you expect from the industry that brought you the sub-prime mortgage mess?
I joined a local credit union, no charge for debit cards, no shareholders to placate and the satisfaction of knowing my funds are being loaned to local folks and small businesses since the big banks are apparently not in the business of making loans anymore. Fun fact: Banks normally loan out approx. $300 for every $100 they have. This is called the “multiplier effect.” Currently, banks are lending approx. $78 for every $100 they have. This doesn’t generate much income, especially when interest rates are so low. Hence, they will nickle and dime the consumer until we take our money elsewhere. BECU had a record number of new customers last month. What a surprise.