Banks Count Losses Ahead of Balance Transfer Day

Banks are scrambling, trying to come up with new ways to make up for as much as $8 billion in lost revenue due to new limits on what they can charge merchandisers for processing debit card transactions. 

Bank execs convened at the Bellagio in Las Vegas for the 19th annual 2011 ATM, Debit & Prepaid Forum, an industry conference to address the major issues facing the banking business.  From November 1-4 eighty executives from many major banks, including keynote speakers from American Express Company, KeyCorp, Bank of America, and EFTPOS, thought of ways to compensate for new intercharge fee regulations which took effect on October 1.

Intercharge fees are paid between banks for debit card-based transactions.  The fees are typically paid to a customer's bank by retailers.  The new regulations have drastically decreased the fee by almost half of the previous industry average to 21 cents.

According to the National Information Center, a repository of financial data collected by the Federal Reserve System, as of the end of June the top three U.S. banks–Bank of America, JPMorgan Chase & Co., and Citigroup–had total assets of $2,264,435,837, $2,246,764,000, and $1,956,626,000  respectively, so it’s hard to sympathize.  Nevertheless, plans are under way to recoup that $8 billion in lost profits by shifting efforts away from debit card use and focusing on payment methods whose intercharge fees were not impacted by the new regulations, like prepaid cards and credit cards.

SunTrust bank has since announced that customers who were charged the debit fee during the trial period would be refunded.

But even plans to regain losses in fees by encouraging cardholders to use credit cards instead of debit cards may be disrupted by yet another grassroots movement aimed at putting consumers first.  After the success of  Bank Transfer Day, a Facebook-fueled movement started by disgruntled Bank of America customer, Kristen Christian, that encourage people to transfer their accounts from major banks to local credit unions by Nov. 5, the organizers of Music For Change are planning Balance Transfer Day on December 11, 2011.

Music For Change is a movement that promotes financial literacy by exposing the shady practices and unproductive regulations of the credit card industry.  On Balance Transfer Day organizers ask credit card holders to perform a balance transfer–to transfer their outstanding balances from high interest rate credit cards to cards with zero interest rates and zero balance transfer fee.

On the Balance Transfer Day Facebook page, organizers explain that “We are not speaking for abolishing interest rates on credit cards, we merely feel that it would be fair if they could be a little lower than today's average [which is] around 16%, especially since we bailed out those banks with our own money in 2008….Let banks taste their own bait.”

Other ideas include charging customers fees if their account balance drops below a certain amount and increasing account fees. According to Scott Qualls, BB&T senior vice president and manager of the bank's retail payments, when deciding on fees banks need to consider how customers make use of bank services.  He goes on to say that interchange fees can only make up some of the fees produced by cardholders’ accounts.

One idea in particular ignited a firestorm of objection and quickly faltered. Following in the footsteps of banks like JPMorgan Chase and Wells Fargo, who were already testing out the idea, Bank of America recently announced plans to start charging customers a $5 monthly debit card fee starting in the new year.  The fee varied in price from $3-$5 depending on the bank. However, just days later the bank along with others said it would not follow through with the plans based on customer complaints.

Even President Obama expressed his disapproval and defended American consumers during an ABC News interview with George Stephanopoulos. In reference to the need for a Consumer Finance Protection Bureau, the president said, “We need somebody whose sole job is to prevent this kind of stuff from happening. … You don’t have some inherent right to get a certain amount of profit. You have to treat (customers) fairly and transparently.”

A balance transfer is a great option for someone with outstanding balances on several cards because it is designed to help people consolidate numerous credit card debts onto one card.  It is also a good way to simplify your payments.  Most importantly, a balance transfer can dramatically reduce your monthly and annual costs.  In addition to all these benefits customers enjoy added perks like cash back offers and extended 0% interest rate periods.

Keep in mind though that in most cases balance transfer credit cards are only available to customers in good standing–people with good to excellent credit scores, no history of bankruptcy, and no severely delinquent accounts. While these requirements ironically remove many people who would benefit from 0 interest on balance transfers the organizers of Balance Transfer Day still encourage those with less than stellar credit ratings to participate in the movement by submitting an application because even that “will be like sending a message of protest.” 

An option for people who do not fall in the good-to-excellent credit category is to transfer a portion of debt to a 0 interest on balance transfers credit card.  Organizers say they hope Balance Transfer Day will have lasting consequences even though the actions may seem immediate.

“Essentially, banks are using our own tax money to make even more money off of us. So why don’t we beat the banks at their own game and demand the same 0% interest rate that they receive from the federal government?,” organizers wrote on their Facebook page. “Banks will get a message that we all want lower rates.”

I guess we just have to wait and see on December 11.