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October 29, 2011

Why debit card fees are good for consumers

Transparency in financial services, for the most part, is an oxymoron. The less consumers understand about money and how to manage it, the more banks profit.  So, there is a huge incentive for bankers, brokers, financial advisors and the like to be misleading or hide behind a shroud of complexity.  This is no secret.  

Given that total transparency in the financial services industry, as demanded by vulnerable consumers and a progressive government, is unrealistic, one would think that even a taste of it by its proponents would engender excitement.  Apparently, that is not the case.  Recently, when banks, led by Bank of America, revealed that they planned to charge customers a $5 monthly fee to use their debit cards, public outrage ensued.  So much for moving toward that utopian, consumer-friendly market in which banks actually reveal their fees and choose not to be so conniving!  

The fact that banks are now canceling their $5 charge policies seems like a great win for consumers, but in my opinion, it is not for two reasons.  First, banks will go back to being less transparent and finding more insidious ways to make their profits.  The public outcry over the charge has actually validated, in a way, their notorious, clandestine activities.  Second and most importantly, customers are now less likely to join a credit union, a financial institution that focuses on what is best for its members, not for Wall Street.  Banks realized, although quite late, that if they proceeded with the charge, they would lose a lot of their deposits and business to credit unions. 

In conclusion, when I heard that banks were planning to implement this debit card charge, I rejoiced saying, “What a great opportunity to move consumers from banks to credit unions!”  It seems like this will not happen as I had hoped.  I doubt another pain point so excruciating and publically detested will surface any time soon and therefore promote the credit union cause.  Unfortunately, consumers have once again tricked themselves into believing that the banks have capitulated under pressure and have done the “right thing”.  The truth is that the banks will find another clever way to get their money, and it is much easier to do that when you are still their customer. 

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I was wondering where you were coming from when you said that debit card fees are good for consumers.

I think that the fees are another way for banks to supplement their profits. I don't think that the fact that they charge upfront for debit card use indicates that they have cut back on the fees they apply behind the scenes in any way.

If anything, as companies are put under more pressure to make profits, banks respond by raising their own fees and finding new things to charge consumers for.

Regarding the comment about banks vs credit unions, I don't agree that this is the case. Many of the people I come in contact with-strangers, etc, are members of both banks and credit unions. However when it comes to loans, people gravitate more towards applying with their credit union.


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Banks must give information about many things they do and its pretty helpful to get inormation about their operations.The transparency will let customer know where his money is going.

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Greetings! I’m Kevin D. Johnson, a business owner who has recently assumed the role of consumer advocate and internet activist. Atlanta, Georgia is my home.

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Upon returning from my wonderful honeymoon in Jamaica in October 2008, I received what I thought was an ordinary American Express bill, but to my surprise it was a disappointing letter informing me that my credit line was reduced by about 65% for a highly suspicious and discriminatory reason. Considering my excellent credit score and pristine payment history, it just didn’t make sense. However, what does make sense are the unfair and insidious policies that I have uncovered when asking why. It is time to change them.

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