Last week, Bank of America announced that it would follow other banks in charging cus­tomers a monthly fee for making pur­chases with their credit cards — leading to out­rage from its cus­tomers. We asked Coleen Pan­talone, asso­ciate dean of under­grad­uate pro­grams and asso­ciate pro­fessor of finance in the Col­lege of Busi­ness Admin­is­tra­tion, to explain why more banks are imposing such fees and share her thoughts on the public’s reac­tion.

What has led big banks like Bank of America, Chase and Wells Fargo to imple­ment new monthly fees for debit card users?

Banks with more than $10 bil­lion in assets, like Bank of America, Chase and Wells Fargo, are reacting to pas­sage of the Dodd-​​Frank Wall Street Reform and Con­sumer Pro­tec­tion Act. This law reduces the amount that these big banks can charge stores and retailers for each debit card pur­chase from 44 cents to 24 cents — almost a 50 per­cent cut. This is a sig­nif­i­cant amount of rev­enue to lose, and these banks are looking for ways to make it up. One obvious way is to charge the debit card users directly, rather than charging the stores where the pur­chases are made, and this is the solu­tion these banks have pro­posed.

What will be the impact of the new fees? Will cus­tomers look to find new banking ser­vices, switch to credit cards — or will they just accept the new monthly charge?

The new fees will add to the cost of banking for many con­sumers. Bank of America, for example, says it will charge up to $60 per year. The inter­esting thing about the Dodd-​​Frank leg­is­la­tion is that it only applies to big banks. Small com­mu­nity banks can still charge stores more than 24 cents, and they are making a point to let con­sumers know that they are not adding fees. I expect many con­sumers will look to find new banking ser­vices and others may switch to credit cards. It isn’t that easy to switch banks. If a con­sumer has auto­mated bill pay, for example, all those accounts have to be changed. Direct deposit of pay­checks would also have to be changed. There­fore, it won’t be easy to switch, and some con­sumers will just give up and accept the added cost. 

How have con­sumers reacted to addi­tional fees for ser­vices in other indus­tries such air­lines, car repair, and so forth? How are banking ser­vices sim­ilar or dif­ferent?

There has cer­tainly been a strong reac­tion to this fee announce­ment. In part, I think, con­sumers feel duped. Banks have been pushing debit cards as a way to do banking busi­ness, and they have been doing that because it is cheaper for the bank than paper checks. Now con­sumers are used to using the cards, and then the banks add fees. Addi­tion­ally, con­sumers have been feeling pres­sure on all sides — the housing market is still down, unem­ploy­ment is high, interest on sav­ings is very low — and com­pa­nies seem to be nickel and diming them with new fees and charges.

The uproar over NetFlix’s new pricing scheme is another recent example of con­sumers feeling like they are being used. The dif­fer­ence between a bank and a com­pany like Net­Flix, or the air­lines with their bag­gage fees, is that con­sumers need to have banking ser­vices. They can give up Net­Flix and carry on their lug­gage to avoid fees, but they need to have a bank.