Are Debit Card Fees Meant to Get Consumers to Use Credit Cards More?

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Why are Bank of America and other financial institutions charging new monthly fees for debit card usage? The move has predictably caused a backlash, and the net result may be that fewer customers will keep using debit cards at all. Could that be the point?

At first glance, the purpose of debit card fees is pretty obvious: As Bank of America CEO Brian Moynihan told CNN Money, the company has “a right to make a profit,” and the new fees provide increased, regular monthly revenues. In the past, debit cards have been enormously profitable for banks. More recently, it doesn’t look quite as easy for banks to make piles of cash via debit cards because reform measures have changed the rules regarding interchange fees and overdraft policies. To make up for the expected loss in revenues, some banks are passing along new monthly fees to customers who simply want to use their debit cards.

(MORE: Three Easy Alternatives to Paying Big Bank Fees)

Introducing debit card fees could backfire on the banks, though. Customers may find the fees unwarranted and obnoxious enough to stop using debit cards entirely—and the banks would wind up missing out on the new monthly fees, as well as revenues from overdrafts and interchange charges to boot.

Even if a debit card backlash occurs, however, the banks may be OK with that. Why? Because if customers use their bank-issued debit cards less, chances are they’ll be using bank-issued credit cards more.

A post from the credit card analysis site LowCards.com points out that credit cards aren’t covered in the new interchange regulations, and banks typically earn a healthy 2% with each and every credit card transaction. That’s far more than the piece of the action a bank gets from the typical swipe of a debit card. What’s more, if customers switch from debit to credit cards, they risk the danger that pushed so many consumers away from credit cards and toward debit card usage in the first place: credit card debt. As the LowCards post puts it:

Banks will make a significant amount of money if you use your credit card and don’t pay off the entire balance on time each month. Consumers are charged a hefty interest rate for carrying a balance from one month to the next, and that interest payment could be anywhere from 10% to 29% depending on your credit card’s APR.

Bank of America and the other institutions introducing debit card fees view the new charges as a win-win. If customers agree to pay them, the bank wins via a newfound, steady monthly revenue stream. If customers stop using debit cards but increase swipe-age of the old-standard credit cards, the banks issuing those credit cards win. According to CardHub, the three big banks that are toying with monthly debit card fees—Bank of America, Chase, and Wells Fargo—just so happen to rank in the top 10 among credit card issuers in the U.S. for purchases made and outstanding balances by customers.

(MORE: Credit Union Paying Customers to Use Its Debit Card)

There’s a simple way that these banks can lose, however. If and when customers become so sickened of the nickel-and-diming being practiced by their financial institutions that they take all of their business—credit and debit cards, checking and savings accounts, the whole deal—elsewhere, then the banks being deserted lose out big time. There are plenty of banking options for consumers to pick from, and for now at least, most don’t charge for debit card usage. One credit union, in fact, is actually paying customers each time they swipe their debit cards.

If there’s one upside to the advent of monthly debit card fees, it’s that they’re more transparent and upfront than interchange fees and overdraft charges. As a Los Angeles Times editorial stated:

Although the new fees are about as welcome as a throbbing headache, they are far easier to spot and avoid than the ones they replaced.

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Now that bank fees are easier to spot and avoid, there’s less of an excuse to keep paying them.

Brad Tuttle is a reporter at TIME. Find him on Twitter at @bradrtuttle. You can also continue the discussion on TIME’s Facebook page and on Twitter at @TIME.

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