Bank of America’s announcement that it is scrapping plans to impose a controversial $5 monthly debit card fee is a classic case of an out-of-touch business clumsily attempting to correct a corporate misstep.
But the effort – as other companies that underestimate the impact of consumers’ ire have discovered – may well be too little, too late.
The debit card fee was a reasonable response to a cap on interchange fees on debit card transactions. The limit on swipe fees, mandated by the Dodd-Frank Act, may cut annual revenue by a total $8 billion at the biggest U.S. banks, according to data compiled by Bloomberg Government.
Bank of America alone could lose about $2 billion a year in annual revenue because of the debit card fee cap, bank executives said in July.
But the bank, the second largest in the nation in assets, failed to communicate the necessity of the new fee to its customers. That was a huge mistake, especially at a time when public anger is still raging over big banks’ investments in the risky, mortgage-backed securities that triggered the current financial crisis.
Consumers reacted negatively to debit card fees, flocking to the social media airwaves to voice their dissatisfaction with Bank of America and other big banks. Inspired perhaps by the grassroots, but amorphous Occupy movement, more than 70,000 people have joined a Facebook group started by a Los Angeles art gallery owner, urging people to transfer their money to lower-fee credit unions.
Savvy credit unions and community banks quickly capitalized on consumer dissatisfaction with big banks, touting their no-fee checking accounts. Shrewdly, their marketing campaigns failed to mention that community banks and most credit unions are exempt from the interchange cap.
The Credit Union National Association estimates that consumers have moved by the tens of thousands – and shifted their money by the hundreds of millions – to credit unions over the past four weeks.
Liberty Bay Credit Union in Boston, for example, has reportedly signed up twice as many customers as usual in the past month, partly because of the backlash against debit card fees.
Credit unions and community banks may be concerned that Bank of America’s flip-flop on the debit card fee will discourage big-bank customers from fleeing to smaller banking havens.
They needn’t worry.
As Netflix CEO Reed Hastings recently discovered, once customers are burned, it’s hard to win them back. Hastings nearly blew up the DVD rental service he founded after imposing a poorly timed price hike, followed by a plan in September to split Netflix into two services – one called Qwikster for DVDs, and one for streaming video.
After an outpouring of customer outrage, Hastings scrapped the Qwikster plan three weeks later. But the company lost more than 800,000 subscribers in the third quarter and faces an uphill battle in restoring customer loyalty.
Despite the demise of big banks’ debit card fees, credit unions and community banks should re-emphasize their commitment to no-fee checking accounts.
And Bank of America – which undoubtedly is already hunting for a way to impose other checking account fees to make up lost revenue – should carefully consider how it explains new fees to a skeptical public.
With the economy still sputtering and many residents concerned about their jobs, Bank of America needs to address customers respectfully, explain the rationale for any fee increase, and do it without whining about government regulations.
If there’s one lesson from this debacle that Bank of America should take away, it’s this: Angry consumers can take out their deposits and put them elsewhere at any time. And credit unions and community banks are ready and willing to cash in on big banks’ blunders.
