Big Banks Raising Fees in Wake of ‘Durbin Amendment’

Published March 28, 2012

Growing numbers of bank customers are finding they no longer have no-fee accounts.

Many of the nation’s largest banks are raising fees or imposing new ones to attempt to recover some of the revenue lost through the “Durbin Amendment” to the Dodd-Frank Act, which limits interchange fees—also called “swipe fees”—banks may charge merchants for debit card transactions.

The amendment was championed by Sen. Dick Durbin (D-IL).

The most recent financial institution to announce new fees was Citizens Bank, which has more than 1,500 branch offices.

Monthly Fee Doubling

The Providence-based regional bank plans to double the monthly charge for its popular Green Checking account from $4.99 to $9.99 on April 23. Customers can avoid the fee by maintaining a balance of at least $1,500 or making five qualifying transactions, such as using a debit card, each month. The bank also plans to boost the monthly fee for its personal checking-with-interest account by $2 to $11.99. Customers can avoid the fee by maintaining an average daily balance of $2,500 or making five qualifying transactions each month.

Citizens Bank is also ending free or discounted fees for check orders for its Circle Checking accounts; it says the fees will vary.

Citizens Bank spokeswoman Lauren DiGeronimo said the changes are to boost profits and standardize products.

“These changes are designed to make our offerings more uniform and easier to understand, and also to make them more economically sustainable in light of recent regulatory and legislative changes affecting our industry,” she said.

New Fee at Fargo

The action comes on the heels of Wells Fargo’s announcemnt that beginning in June it will charge a $7 checking account fee to customers in Georgia, New Jersey, Delaware, Connecticut, New York, and Pennsylvania. This follows similar moves in California and Illinois last year.

Bank of America and Chase have also introduced new fees for monthly checking accounts.

John Berlau, a senior fellow of the Competitive Enterprise Institute, said the banks have had to seek new sources of revenue to replace money lost because of the interchange fee limits. The Dodd-Frank law also limits overdraft fees, though the interchange rules are the biggest culprit.

“The Occupy people should be protesting Wal-Mart [for this]. They [retailers] are pocketing billions of dollars that they weren’t before,” Berlau said. “Someone has to pay. People are getting upset that they have to pay banks to hold their money. But it’s just like paying a warehouse to store your furniture.”

$12 Billion Shift

Berlau said the Durbin Amendment has shifted $12 billion to some of the nation’s wealthiest retailers, such as Wal-Mart, Home Depot, and Walgreens—all of which lobbied for the interchange fee limits to fatten their pocketbooks. Durbin even invoked lobbying from Walgreens—based in Deerfield, Illinois—as a reason for his amendment. He related on the Senate floor that interchange fees were the firm’s fourth-largest cost.

“Left undisclosed by Durbin is why he apparently believes that retailer profits—Walgreens earns about $2 billion a year—must be protected by making banks and credit unions charge retailers debit card fees that are below the cost of processing,” Berlau said.

When interest rates were higher, banks could still make a good profit on “margin spread” between what they would pay in rewards or interest for holding a person’s money in a checking or savings account and what they could charge in loaning the money. But today’s miniscule interest rates mean there is almost no spread. That loss of revenue plus the reduced interchange fees means the bankers had to turn to monthly account fees, Berlau explained.

Credit unions, too, have been hit. The Credit Union National Association said in a statement, “[The Durbin Amendment] will impose a severe hardship on credit unions with debit card programs, draining the revenue they need to offset the costs of providing card services. Much as they would prefer not to, credit unions will have no recourse but to make up these costs by imposing new fees or service restrictions on their members. How are consumers better off under this scenario? The plain fact is they are not.”