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."
So much for the idea that clean, simple pricing would placate everyone. Still, the mutual desire of banks and these utility advocates to see banks hold onto underbanked customers does provide some common ground.
Lastly, there's a group of what can be called consumer free-market advocates. The population of this camp is readily identifiable precisely because it hasn't taken a moral stance against Bank of America in the last week.
For these wonkish sorts, the $5 fee is a sign that the Durbin Amendment worked — it purged a hidden retail banking subsidy that had allowed banks to compete on rewards program marketing, where large institutions have an undeniable edge, instead of their actual cost of providing basic banking services. If Bank of America wants to charge $5 a month for debit or Citi needs $15 a month to support its retail deposit businesses, that's fine: more efficient institutions now have a chance to pick off their customers.
Admittedly, there are far fewer of this type of consumer advocate than of the first two varieties. But for banks that consider themselves well suited to compete on such terms, there's a bit of positive news: such advocates are positioned to play a decisive role in regulating the industry.
"This isn't about any one fee from any one bank," CFPB special advisor Raj Date announced in a Wednesday press release that appeared to reject President Obama's suggestion that the bureau should consider trying to stop Bank of America's fee.
"The problem is that checking accounts often come with a wide variety of unexpected costs that can quickly add up for consumers. Different banks charge different fees. Different fees are applied under different terms and conditions. Different banks give different names to the very same fee."
In other words, Date and likeminded advocates appear to want solely the open competition that they claimed to want during the original debit interchange debate. It will be interesting to see whether the industry itself wants this.
Jeff Horwitz is a co-editor for risk management at American Banker.