Debit fee uproar in U.S. highlights card demons

U.S. consumers are claiming victory after some banks dropped plans to charge monthly debit card fees, but Canadians who now aren't subjected to such a cost are warned the debit system could harm their pockets in less obvious ways.

Canadians may be hit with transaction fees more than they think

Molly Katchpole, a 22-year-old Washington, D.C., resident, led an online petition asking Bank of America to cancel its planned $5 debit card fee. The petition had more than 306,000 supporters when the bank said it would scrap the fee. (Jess Kutch/Associated Press)

U.S. consumers are claiming a huge victory after some banks dropped plans this week to charge monthly debit card fees, but Canadians who now aren't subjected to such a cost are warned the debit system could harm their pockets in less obvious ways.

A month after announcing certain customers would be charged $5 each for debit cards, Bank of America this week dropped the fee plans, posting on its website: "We listened, and heard your feedback about our proposed debit usage fee for 2012. We will not be moving forward with any plans to charge the fee."

Other U.S. banks also reversed decisions to consider monthly fees following a backlash from lawmakers and customers, including 22-year-old Washington, D.C., nanny Molly Katchpole, who said "one more fee was just too much," and launched an online petition that garnered more than 300,000 signatures.

Bruce Cran of the Consumers' Association of Canada told CBC News on Wednesday that Canadian banks don't charge a set monthly fee just to have a debit card, but they "were aware of and watching the U.S. situation."

Had U.S. banks' debit card monthly fee plans proceeded, Cran said from Vancouver, it probably would have been "an irresistible" option for providers of the estimated 37 million debit cards in circulation in Canada.

U.S. banks turned to the idea of charging for debit cards in an attempt to replace revenue and costs after the Federal Reserve capped fees on debit-card purchases last month at about half the previous level, a move that could cut annual revenue by $8 billion at the biggest U.S. banks.

Cran noted that while banks in Canada "are devoted to making a profit, they don't do some of the things we view as scandalous that happen in other countries, including in the U.S."

'What we recommend is talk to your bank – take a look at how many transactions and what types of transactions you have made. If someone does a lot of transactions, it may be worth [getting a higher-fee package].'—Maura Drew-Lytle, Canadian Bankers Association

However, he added, "I hear from a lot of people who say they are suddenly being charged for something, but then find out they have been paying it for years and didn't know."

The Canadian Bankers Association (CBA) says banks charge service fees for customers to access their own money, and those fees pay for a national network of 6,100 branches, 59,000 ABMs, including 17,320 bank-owned ABMs, Interac Direct Payment terminals at more than 450,000 retailers in Canada, and telephone and internet banking

Sixty per cent of Canadians pay $15 or less for monthly service fees, with 31 per cent reporting paying nothing at all, but if you use more debit and other transactions than are included in your fee package, you could end up paying 75 cents or more extra per transaction.

Most banks don't charge a fee for taking money out of an ABM machine that belongs to your financial institution, but the Financial Consumer Agency of Canada (FCAC) says if you take money out of an ABM owned by a bank you don't have an account with, you could be charged fees ranging from $1 to $5.60, based on June 2010 data; if you use a private operator's ABM, the fees jump from $1.50 to $8.60.

For more tips on reducing debit card fees, click here.

"It is something a lot of people aren't aware of," FCAC spokeswoman Julie Hauser says about how extra fees can add up. "If you look at how many times a month you do that, you can end up paying $10 to $15 more a month, and that works out to more than $120 a year.

"The key is doing your homework, finding out what the fees are and if they apply to you. Whatever works best for you is the way you want to go," Hauser says from her Ottawa office.

Cran said another controversial issue with debit card use in Canada involves merchant fees, which aren't regulated and can add to any extra-transaction or other fees.

The FCAC notes, however, that any "convenience" fee or surcharge by merchant or terminal providers must be disclosed to the consumer on the PIN pad screen first, and you are given the choice to cancel the transaction at no cost.

'Talk to your bank'

CBA spokeswoman Maura Drew-Lytle says bank fee rates have been "pretty consistent" over the years, and "haven't really gone up a lot," but advises consumers to ensure they pick a fee package that fits their needs.

Debit cards in Canada don't carry a monthly fee, but their use can still end up costing consumers more than they bargained for. (Interac Association/Canadian Press)

"There are low-fee packages where they allow 15 transactions a month for instance, but if go over that, you pay per transaction," and that includes writing cheques or making bill payments, Drew-Lytle said in Toronto. Other fee plans include unlimited transactions, but the cost per month will be higher.

"What we recommend is talk to your bank – take a look at how many transactions and what types of transactions you have made," she said. "If someone does a lot transactions, it may be worth [getting a higher-fee package]."

Cran says increased competition in the debit card industry — in the last couple of years, MasterCard and Visa joined Interac in offering the service — "is a step in the right direction" in terms of controlling consumer fees. 

"It gives consumers another choice and we always feel that's a good thing."

While some point to the debit card about-face in the U.S. as a victory for the Occupy movement, a commentary by blogger Mike Gavin in the Wall Street Journal says it's more a matter of consumers hitting banks where it counts.

"The best way to affect change against corporations, whose sole purpose on the planet is to make money is quickly and efficiently as possible, is to simply take your business elsewhere," Gavin wrote.