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Consumers exercise debit card fee options, for better or for worse

by Broderick Perkins

(11/10/2011) Erate Exclusive - The movement by more than a quarter million Americans who dumped banks for credit unions after Bank of America announced a new debt card fee, is probably just the tip of the iceberg.

A new survey says the vast majority of consumers would consider dumping their bank if it decided to impose a new fee.

A National Foundation for Credit Counseling (NFCC) survey said only three percent of the more than 2,400 consumers surveyed said would continue to use their current debit card if their bank imposed a fee.

"People have become very aware of how they spend their money, even small amounts, and that's a good thing," said Gail Cunningham, spokesperson for the NFCC.

"The poll results send a strong message, but at this point that message remains a sentiment. Only time will tell if people will follow through and actually change long-ingrained habits," she said.

When they do, they exert unquestionable consumer power that can move corporate mountains far faster than Capital Hill.

From the time this fall when Bank of America introduced plans for a new debit card fee -- a plan it has since scuttled -- until "Bank Transfer Day" on Nov. 5, more than 650,000 consumers left their bank for credit unions, according to the Credit Union National Association (CUNA).

Facebook's "Bank Transfer Day" page gets credit for another 90,000 defections.

CUNA said during the less than two-month period, 80 percent of all credit unions enjoyed some level of membership increases, as consumers transferred $4.5 billion into new accounts.

Other major banks also backed away from plans to raise or add debit card fees, in direct response to consumer backlash and related media coverage.

It's apparent, proactive behavior (think boycott) goes a lot further than sitting around in city squares exacerbating the tax burden on already cash-strapped cities. It also shows consumers can be a lot more powerful than legislators sitting around in chambers while a nation awaits economic solutions.

"As financial institutions evaluate their options, consumers should do the same and be prepared for any changes that might impact their accounts.

The NFCC cautioned there are both pros and cons to the techniques consumers are using to avoid debit card fees. Here are the pros and cons for each approach consumers said they would take if their bank imposed a debit card fee.

• Find a bank that doesn't charge debit card fees - 62 percent.

Pro: Keeps the availability of a debit card while avoiding fees.

Con: Changing financial institutions isn't easy, particularly if you have direct deposits or drafts associated with your checking account. Keep your old account open for three months after opening a new one, allowing time for all transfers to be moved over. Don't forget to check ATM machine location convenience as wall as the new bank or credit union's usage fees, the cost of checks, etc.

• Return to paying with cash - 22 percent.

Pro: Because you can't spend cash you don't have, this method also controls spending.

Con: Carrying a roll of dough in your pocket can be unsafe and inconvenient.

• Begin paying for purchases by check - 8 percent.

Pro: This alternative to using a fee-based debit card, maximizes the use of an existing checking account, which may already have a fee associated with it.

Con: Using checks can be inconvenient. Some merchants no longer accept checks. If you write a check that overdraws your account, prepare your wallet for penalties and fees.

• Begin or increase credit card purchases - 5 percent.

Pro: Charging creates a credit file and resulting credit score. If handled responsibly, this can work in your favor for future financial needs.

Con: Credit makes overspending easy. If you don't handle plastic carefully, charging goods and services can result in a financial meltdown.

• Keep using my debit card as usual - 3 percent.

Pro: This certainly avoids the hassle of changing banks.

Con: Expect your budget to get hit with the new fee.

"As with any financial decision, consumers need to do their homework and evaluate all options to determine which is best for their lifestyle," said Cunningham.

"The bottom line is that banks have the right to assess fees, and consumers have the right to choose who they do business with. Before leaving, however, consumers should ask the bank to waive the fee, citing how long they've been a customer, how many bank products they are using, and associated balances. No one wants to lose a valuable customer, so be sure to talk before you walk," she added.

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