In a soon-to-arrive consequence of the Dodd Frank Wall Street Reform and Consumer Protection Act, Regions Bank in mid-October will begin charging customers in Mississippi and elsewhere a $4 monthly fee for debit card use.
The financial services sector has been predicting for the past year that Dodd Frank’s mandated cut in swipe card fees paid to a debit card’s bank would force banks to offset the revenue losses. Other banks in the Magnolia State are holding off assessing the fees, though Wells Fargo is test marketing a $3 monthly debit card charge in Georgia and four other states in the West and Northwest.
The fee will be charged only one time per month regardless of the number of cards tied to the account or the number of point-of-sale transactions. Selecting either “debit” or “credit” on a transaction will trigger the fees.
Both Wells Fargo and Regions will still provide free use of the cards at ATM machines but will collect the fees on use of the cards for paying for products or services. “We and other banks are adjusting how we cover the costs of providing debit cards,” Regions said in a statement.
The Birmingham-based multi-state bank will offer upgraded checking accounts that allow the customer to avoid “point of sale” charges for debit card use.
Like Regions, Wells Fargo will begin collecting the charges Oct. 14. In addition to Georgia, Wells Fargo is initiating the charges in its New Mexico, Nevada, Oregon and Washington markets.
Other banks in Mississippi are holding back — for now, a survey of several of them found.
“At this point we’re not moving in that direction,” said Trustmark’s Barry Planch, senior VP for product management.
He said the Jackson-based regional bank wants to encourage — not discourage — use of debit cards. “We feel like use of the debit card is good for our customer and good for the bank,” Planch said, though he emphasized that revenue pressure could force Trustmark and other banks to begin charging fees.
“Ultimately, all may do it,” he said.
BancorpSouth and Renasant Bank, both based in Tupelo, and Starkville’s Cadence Bank are also continuing to offer fee-free debit card use. Community Bank, based in Ridgeland, is also holding back on the fee collections.
Cadence spokeswoman Donna Rupp said the bank has no plans for a change, while BancorpSouth spokesman Chuck McIntosh said the bank has not yet settled on a strategy for offsetting the revenue loss. “BancorpSouth has not made any decisions yet at this time on debit card pricing,” McIntosh said.
Community Bank’s spokesman Tony Sims said the bank intends to stay the course on free cards. “For us, it has become a service our customers have come to rely on,” he said.
The interchange fee cuts set by the Federal Reserve board go into effect Oct. 1. Banks that had been averaging 40 cents to 44 cents a transaction will receive a base fee of 21 cents that can rise to around 24 cents based on the bank’s level of compliance with fraud prevention standards.
Asset values of Community Bank ($2.25 billion), Cadence ($1.53 billion), and Trustmark ($9.6 billion) put the Mississippi-based banks below the $10 billion threshold for the interchange fee caps.
But it is widely expected — even by the chairman of the Federal Reserve — that smaller banks will be forced to cut their interchange fees as well, said David C. John, Heritage Foundation senior research fellow, in an analysis.
Smaller card issuers received the exemption because spreading their costs across a much lower volume of transactions forces them to charge higher fees than larger issuers if they are to survive. But smaller issuers have no leverage and will be squeezed into accepting the lower rate, John wrote, and noted several banking regulators, including Federal Reserve Chairman Ben Bernanke,agree.
“Both they and representatives of smaller issuers argue that merchants could refuse to accept debit cards issued by smaller banks and credit unions because the merchants would have to pay higher fees.”
That could lead to even more concentration in the banking industry, he wrote.
For Regions, the new fee assessments come as debit card use among its customers is higher than ever. Regions “experienced a record quarter in interchange and ATM income” in 2011’s fist quarter after receiving $368 million in debit card fees in 2010, an 18 percent increase from the previous year, said president & CEO Grayson Hall in a 1Q earnings presentation.
An 8 percent increase in card use and a 13 percent increase in spending levels drove the 18 percent rise, Hall said.
The Federal Reserve Board initially proposed a 12 cents cap on the fees and has the option of going to that level two years from now.
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