Widespread outrage over Bank of America's $5 debit card fee might make industry leaders feel like they're surrounded by peasants with pitchforks. But bankers would do well to notice the subtle differences among their critics.
Careful reading and listening to the range of responses to B of A's fee shows there are really three distinct groups of self-styled consumer advocates. These demarcations may be useful in setting industry strategy.
One group, the true pitchfork crowd, is the loudest but can be quickly dismissed. A second category, utility banking advocates, is composed of established Washington consumer groups that demand banks serve customers regardless of profitability. The third group consists of regulators and bank policy wonks, perhaps typified by the Consumer Financial Protection Bureau's Raj Date, who simply demand transparent fee-for-service banking. If the industry works seriously with this last group, it can safely ignore the first and engage the second on limited terms.
The pitchfork crowd is perhaps the easiest to describe, and its seriousness is inversely related to how much attention it spends on garnering attention. Think cutting up debit cards on-air, calling for the Consumer Financial Protection Bureau to intervene, and delivering signature petitions to B of A branches. Rarely full-time financial service policy specialists, this category of critic includes entities like Green America, a jack of all trades that that promotes women-friendly mutual funds, eco-friendly children's clothing, and native American snack foods.
Asked by American Banker why Green America was accusing B of A of "outrageous mega-bank gouging," the head of the organization wrote back that spread income was the only appropriate source of revenue from checking accounts. Informed that this would devastate the small banks he claimed to champion, he did not respond.
The second group, utility bank advocates, come with a coherent perspective — albeit one that disapproves of large institutions and sees retail banking as akin to the electric company, obligated to provide at least basic service at tightly controlled prices.
"Transparency is always appreciated," said Chi Chi Woo, a staff attorney for the National Consumer Law Center. While such a fee is better than hidden subsidies from debit interchange fees, "from our perspective what we're concerned about is driving out certain low-income people out of the banking system," she said. "That's the point where the public good comes in."
Groups like the NCLC and US PIRG are irked by B of A's fee because they consider it an effort to force customers into the riskier world of credit cards or drop out of the banking system. It doesn't help that Bank of America has blamed the fee on the new debit interchange limits.
During the debate over interchange, these consumer groups blasted banks for siphoning profits from transactions in ways that consumers and merchants couldn't realistically avoid.
"Markets don't work when there are hidden fees and rules," Ed Mierzwinski of U.S. PIRG told the House Financial Services Committee last year. "Absent choice, the discipline of the market will be lost."
The advocates helped the retail lobby win limits on interchange, and banks had to adjust to diminished interchange profitability. Bank of America responded by imposing the flat monthly fee for debit card usage, and was promptly lambasted by everyone from President Obama to Fox Business News anchors.
"Yes it's transparent, and yes, you can avoid it," Mierzwinski told American Banker of the fee this week. "But I don't have a problem beating B of A up in public. I'm not going to praise them for going from nothing to an instant $5 fee."
