LOS ANGELES — Bank of America Corp. will charge customers $5 a month when they use debit cards to make purchases, a move likely to be followed by other banks as new federal regulations limit their ability to pinch consumers with big fees for overdrafts and late credit-card payments.
Debit cards have been promoted for years as a free and easy way to pay for goods and services. But the costs of using those cards were offset in part by the lucrative fees banks reaped from other services and penalties — and which are now being limited by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Those restrictions include reductions of nearly 50 percent on so-called swipe charges to merchants who accept debit cards, a change that is slashing the industry’s revenue by $6.6 billion a year, according to one study. Bank of America has said it would lose $2 billion a year in merchant fees.
“There’s no question we’re going to see more of these types of charges,” said Trish Wexler, a spokeswoman for industry lobbying group Electronics Payment Coalition. “The bottom line is that all of us consumers will be paying more.”
Wells Fargo & Co. and JPMorgan Chase & Co. have been testing a $3-a-month fee in a few states, but Bank of America, which is eliminating at least 30,000 jobs in a cost-cutting effort, was the first to announce the broad increase for most consumer checking account customers.
The debit card fees are in addition to monthly maintenance charges that banks reinstituted this year on many checking accounts after luring customers for more than two decades with offers of free checking.
The new Bank of America fee will be phased in early next year, bank spokeswoman Anne Pace said. Customers would be able to use the bank’s automated teller machines without being charged, but would be socked for $5 in any month they made a debit card purchase, whether they did so once or 100 times.
Such a change seemed designed to drive away less-affluent customers, consumer advocates said.
“Kicking your customers in the head with a $5 fee is an overreach — and perhaps a fee too far,” said Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group. “It could be the kind of thing that causes consumers to switch banks.”
U.S. Sen. Dick Durbin, D-Ill., who authored the swipe-fee legislation, accused the bank of trying to find “new ways to pad their profits by sticking it to its customers. It’s overt, unfair and I hope their customers have the final say.”
At a downtown Los Angeles Bank of America branch, longtime customers were fuming about the extra fee.
“I’m not a (Bank of America) stockholder, I’m not getting any benefit from this, so it just pisses me off,” said Carolina Roca-Smith of West Hollywood, Calif., who added that she used her debit card “for everything.”
The 34-year-old filmmaker compared the fee to drug dealers “who give you the product for free, get you comfortable with it and then start charging once you’re hooked.”
Nonetheless, Roca-Smith said, it would be too complicated to move to another bank. “I’m just going to suck it up.”
Others, though, such as Trish Love, 40, of L.A., said they may switch banks, perhaps to regional ones or credit unions that may not charge such fees.
“That’s crazy. It’s unfair that we have to pay an extra fee for using our own money,” said Love, a Los Angeles Police Department employee and Bank of America customer for 22 years.
Like it or not, it won’t be the last such fee, consumer advocates and bank lobbyists agreed.
“The economics of offering debit cards have changed,” Bank of America spokeswoman Pace said.
The debit card fee could be reviewed by the new Consumer Financial Protection Bureau, although the agency generally cannot set rates or prices. It is focused on how fees are disclosed to consumers.
Pace declined to estimate how much the bank believes it could gain from the fees. If half its 57 million consumer and small-business customers paid $5 each month, it would generate $1.7 billion in revenue a year, though Pace said that number “does grossly overstate the impact.”
She declined to say how many consumer accounts the bank has, but small businesses would not be affected. Bank of America is the nation’s largest mortgage servicer and the biggest issuer of debit cards, with about 15 percent of the market.
The new fee also is not expected to affect those given Bank of America debit cards through such state programs as unemployment assistance.
California is switching payment of unemployment, disability and paid family leave benefits from paper checks to plastic debit cards, issued by Bank of America. In recent weeks the state has sent out about 22,000 cards a day.
But, the contract with the state Employment Development Department restricts the kind and frequency of fees that the bank can charge more than 1.5 million cardholders.
“We provide a program where it’s possible to use the card without paying any fees,” said EDD spokeswoman Loree Levy. “You just have to be careful.”
Bank of America said its customers could avoid the new debit card fees much the way they can avoid maintenance fees on checking accounts. They would need to have, for instance, a Bank of America mortgage or a combined $20,000 in all their accounts at the bank and at Merrill Lynch & Co., its Wall Street investment unit.
One candidate for that waiver, Guadalupe Garcia, a program manager at the University of Southern California’s medical school, headed for the on-campus credit union Thursday to switch from Bank of America.
“I am very fortunate in that I saw a large increase in salary over the last couple of years,” Garcia said. “I know I am the kind of customer (Bank of America) consistently woos. That is why I feel a social responsibility to leave.”
Though her financial condition is secure now, she said, “I was not always where I am now. I may not always be where I am now. I know how expensive it is to be poor. I hate that (Bank of America) is making it that much more so.”
Merchant trade groups, which had engaged in a long and bitter lobbying war over the swipe fees, said the changes would result in consumers paying lower prices for goods and services.
“Hidden fees are bad for consumers and bad for competition,” said Jennifer Hatcher, vice president of government relations at the Food Marketing Institute.
“While the banks seem to try to skim every penny they can from their customers, retailers are doing everything that they can to educate consumers and protect them from hidden debit fees,” she said.
Los Angeles Times staff writers James Puzzanghera in Washington and Marc Lifsher in Sacramento, Calif., contributed to this report.