Banks and credit unions react to new fees
As Bank of America Corp., Citigroup Inc., Wells Fargo and other national banks move toward charging for debit card use, Maine's smaller banks are maneuvering to catch the attention of any alienated customers the big players leave behind.
Tucker Cole, president of Evergreen Credit Union, says he plans to run print advertising related to the issue. His credit union is already running a message on its electronic board outside its main office with the message, "Are you paying bank fees? Try a credit union," on Riverside Street in Portland, which sees thousands of cars a day. And since Bank of America announced its intention to charge debit card fees, Evergreen has opened up 15 to 20 new accounts for disgruntled Bank of America patrons, he says.
The Maine Credit Union League, meanwhile, has seen traffic on its site jump 21% in the 10 days following Bank of America's announcement, according to a spokesman for the association. A survey of Maine's 64 credit unions found that none plans to institute a debit card fee, says League President John Murphy, a promise that credit unions are trying to communicate to customers "as strongly as they can ... We're getting as much information out to consumers that they don't have to stand for these fees."
But Chris Pinkham, head of the Maine Bankers Association, warns that with the wave of new regulations that all banks must deal with -- both large and small - some free services customers have come to expect might disappear. "There is so much overregulation that is coming along that everybody is starting to scratch their heads and say, ‘Free checking will be gone,'" he says, adding, "But it isn't yet." He says there's no way of anticipating how the banking industry will be changed by the Dodd-Frank bill and other financial regulations.
The hullaballoo around debit card fees began this month when the Durbin Amendment went into effect, part of the 2010 Dodd-Frank Act to regulate banks and protect consumers. The amendment, supported by retailers and opposed by banks, caps the amount banks can charge for debit card swipes to 21 cents, plus a few pennies, down from an average of 44 cents. This will result in bank losses of $6.6 billion a year, according to Javelin Strategy and Research. To pick up the slack, Bank of America says it will institute a $5 monthly debit card fee starting early next year. Other big banks are taking similar routes.
The controversial amendment does not affect banks and credit unions with less than $10 billion in assets, thus giving community banks an opportunity to seize more market share. They're being helped by a slew of media stories and financial talking heads urging people to check out their local bank or credit union as a fee-free antidote. Even if charging debit card fees is found to be illegal, as some House Democrats are arguing, or people just can't be bothered to switch institutions, the bad press alone is like free advertising.
While smaller banks and credit unions don't disagree that they're also being squeezed by the changing regulatory environment, they say they're trying to avoid frustrating their customers by passing along costs to them.
Murphy, from the credit union league, says the structure of credit unions, which are owned and managed by its members, help ensure protection against new fees. "Everyone has to pay the bills," he says, "but credit unions are owned and operated by the people who use their services, so they do everything they can to avoid fees."
Patricia Weigel, president of Norway Savings Bank, which has two Portland locations, says the current market's fairly soft loan demand, coupled with new laws, is hurting most banks, including Norway Savings. Yet the bank has worked to control its expenses rather than seek new revenue sources, she says.
Yellow Light Breen, chief strategic officer at Bangor Savings Bank, which last year launched a major expansion into the Portland market, says "using debits cards is the bread and butter of banking for folks. Adding fees for using debit cards is just one more paper cut to customers." He says instead that the bank's aggressive expansion into southern Maine is expected to compensate for the increased costs associated with new regulations.
"We're in a growth mode, we're trying to acquire market share in Maine, and we've seen dramatic growth," Breen says. "We've been investing to grow, investing fairly dramatically in branches and online banking capability, and we think the payoff will grow a customer base that is sustainable and offset some of the fixed costs we all have of doing business here."
Merchants expect small gains
Merchants, meanwhile, are anticipating seeing some, but not great, savings from the fees they no longer have to pay to process debit card transactions. Retail advocates say there's still more work to be done to control fees related to credit card use, and that the new limits per debit-card swipe is higher than the 12 cents they were hoping for.
Tina Wilcoxson, the general manager of Royal River Natural Foods in Freeport, says her store's swipe fees have been higher than her health care and utilities bills. Because the Durbin Amendment just went into effect, she says she's not sure how much her store will save yet. "It'll definitely help but I don't know by how much," she says. "Unfortunately with Bank of America saying they're going to charge people for using debit cards, people will use credit cards and that will negate savings."
The Maine Merchants Association, which has long advocated for new rules protecting merchants from high credit and debit card fees, is advising its members to check with their card processor to make sure they're seeing relief, says Director Curtis Picard. "They should call their processor and ask whether they're getting the lower grades for debit card processing. [The amendment] took effect Oct. 1, and it's going to be into November before retailers get their statements."
According to payment processor Heartland Payment Systems, Maine merchants are saving an average of $154.09 for every $1,000 in Visa and Mastercard signature debit and credit card volume processed, based on data collected from Oct. 1 to Oct. 16. The data only include transactions where customers signed for the purchase, not those where customers used a PIN.
At least one store owner has decided to move away completely from the complex, baffling credit and debit card bills that many retailers describe receiving. Darcy Doniger, co-owner of 2 Note Botanical Perfumery on Moulton Street in the Old Port, says she decided to give up the cash register and pin-card reader all together and just use her iPad. With a company called Square, she now processes customers' debit and credit cards with a little square gadget she affixes to her iPad. Instead of paying different fees for every card, she pays a flat monthly fee of 2.75% of her sales. "I'm probably saving $300 a month and in addition, I don't have to do any bookkeeping," she says.
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