Bank of America's Debit Card Fee Sparks Industry-Wide Debate

Bank of America's recent decision to charge customers a $5 monthly fee for debit card purchases has caused a stir in the banking industry, with smaller community banks taking a stand against the move. Green Bank, NA, an interest-income-driven bank, has declared that it will not follow suit, while other smaller banks are capitalizing on the trend to offer free checking and debit cards to their customers. The move highlights the contrasting business models of large and small banks, with many arguing that the Durbin Amendment's limitations on interchange fees have led to price controls that ultimately harm consumers.

Key Takeaways:

• Green Bank, NA, a privately held community bank, has stated that it will not charge customers a monthly fee for debit card purchases, citing its interest-income-driven business model.
• The bank's EVP for Private Banking, Paco Rivera, believes that smaller banks will not follow Bank of America's lead in implementing monthly fees, as they focus on building relationships with their customers through free services.
• North Jersey Community Bank, another community bank, has also maintained its free checking and debit card policies, citing the benefits of a profitable relationship with its customers over interchange fees.
• The Durbin Amendment's limitations on interchange fees have led to price controls that are forcing large banks to find new ways to generate revenue, resulting in increased fees for consumers.
• Smaller banks are taking advantage of the trend by offering free services and maintaining relationships with their customers, which they believe is essential for long-term profitability.
• Green Bank, NA, is set to complete the purchase of three more Houston-area branches from Main Street Bank in late October and open another branch in Dallas later next month.
• Frank Sorrentino III, CEO of North Jersey Community Bank, believes that the largest institutions are now charging customers fees based on perceived profitability, resulting in consumers losing out on good customer service.

Statistics:

• Bank of America's decision to charge customers a $5 monthly fee for debit card purchases has sparked a trend among large banks to implement similar fees.
• Green Bank, NA, has reached $1 billion in total assets as of July 2012.
• North Jersey Community Bank had $656.2 million in total assets as of June 30, 2012.
• The Durbin Amendment's limitations on interchange fees have led to a decrease in revenue for large banks, forcing them to explore other revenue streams.
• 5%: The Tier 1 leverage ratio required by regulators for banks to be considered well-capitalized.
• 10%: The total risk-based capital ratio required by regulators for banks to be considered well-capitalized.
• 13.98%: Green Bank, NA's Tier 1 leverage ratio as of June 2010.
• 17.75%: Green Bank, NA's total risk-based capital ratio as of June 2010.

Sources:

• Bank of America's decision to charge customers a $5 monthly fee for debit card purchases.
• Green Bank, NA, a privately held community bank headquartered in Houston.
• North Jersey Community Bank, a privately held community bank operating in Bergen, Hudson, and Monmouth counties in New Jersey.
• Friedman Fleischer & Lowe, Harvest Partners LP, and Pine Brook Road Partners LLC, private equity investors.
• SNL Financial, a financial research and analysis firm.
• TheStreet (http://www.thestreet.com).