BofA drops debit fee plan

CHARLOTTE, N.C. – Bank of America Corp. has eliminated its planned $5 debit card fee, backing down after more than a month of harsh criticism and mounting pressure as top competitors declined to follow suit with similar charges.

Analysts say it was a necessary move that will chip away at some of the resentment against the nation’s second-largest bank by assets. But they say the about-face also highlights the Charlotte bank’s decreasing ability to lead other big banks – and raises more questions about chief executive Brian Moynihan’s credibility as the bank faces challenges on multiple fronts.

“It strikes me as another black eye to Moynihan and everyone involved in the decision to press forward with what became another on a string of public relations embarrassments,” said Gary Townsend of Hill-Townsend Capital LLC, a Maryland firm that invests in banks. “We knew almost immediately that other banks were not going to follow … so what it tells me is that Bank of America is not in a position to lead, and it didn’t lead here.”

The bank first announced the fee Sept. 29 in response to regulations that cap the “swipe fees” merchants pay banks when shoppers pay with debit cards. The charge would have been phased in starting next year.

The swipe-fee caps, part of the Dodd-Frank financial reform law, could cost affected banks a combined $6.6 billion annually, financial services research firm Javelin Strategy & Research estimated. Bank of America has said it stands to lose $3 billion a year from that regulation and from its move last year to eliminate overdraft fees on most debit transactions.

Other lenders, including Wells Fargo & Co. and SunTrust Banks Inc., were already testing or had implemented similar debit-card fees. But Bank of America caught the brunt of the criticism, with customers threatening to switch banks and politicians from local legislators to President Barack Obama chiding the bank’s leaders for squeezing customers in an uncertain economy.

Community banks and credit unions began wooing frustrated customers, with some reporting a windfall of new checking account customers as a result of big banks’ fees.

And big-bank competitors began to pull back: JPMorgan Chase & Co. and Wells Fargo, for instance, decided last week to halt their debit-fee tests, and SunTrust announced it would eliminate its $5 monthly fee and reimburse customers who had already paid.

Moynihan has defended Bank of America’s fee to analysts and the public, noting that customers with some types of accounts or mortgages would be exempt – which would encourage people to do more business with the bank. During a meeting with employees last month, he said he was “incensed” by recent attacks on the bank, Bloomberg reported.

By late last week, sources familiar with the situation were saying the bank would likely scale back its original plan, making it easier for more customers to avoid the fee. On Tuesday morning, Bank of America announced it would scrap the charges entirely.

“We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee,” co-Chief Operating Officer David Darnell said in a statement. “Our customers’ voices are most important to us. As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so.”

Some customers celebrated the move.

Marie Wilkinson, of south Charlotte, said she had planned to switch banks after the fee was implemented. But she said Tuesday she would give Bank of America another chance.

“Since (Bank of America) has decided, due to such a public outcry, to cancel the plan, I will probably stay with them until they undoubtedly try to come up with yet another fee,” she said.

Michael Robinson of Levick Strategic Communications, a Washington, D.C., public relations firm specializing in crisis management, said reversing the debit fee was a good first step in rebuilding public confidence. Now, the bank needs to slowly win back customers’ trust by reminding people of the bank’s importance to the economy and ramping up customer service, he said.

“I think they have to get back into the business of relating to their customers,” Robinson said. “You occasionally get a mulligan, but you’ve got to ask for it. They have to say, ‘We made a mistake, but we’re making it right.’ ”