No one will ever accuse me of being a banking industry monkey. I don't much care for the general tone of the industry today in relation to it's willingness ( or lack thereof) to be our financial partners. I don't like being tricked. And trickiness seems to be the operative strategy from our country's biggest banks. So it was no surprise to learn of the latest money grab by the banking industry. Their latest fee? Debit card usage fees.
Bank of America, along with several other top banks, intend on charging customers up to $5 per month whenever the bank-issued debit card is used. I have a major problem with this. MAJOR PROBLEM. But once again, let's hit some housekeeping items:
- Too much regulation "encouraged" banks to do this
- I believe banks have positioned themselves to benefit from our poor financial decisions.
- The debit card is the sole payment method that I use. Sole. Therefore, this blog post isn't as much for you, as it is for me. I need a new strategy.
Alright, so banks will start discouraging you from using your debit card. That's what a fee is in the banking industry. It's a discouragement tool. They are trying to discourage you from doing things that don't make them money. Banks are trying to makeup for a major revenue shortfall caused when the debit card transaction fees charged to merchants changed early this year. That was all part of the Dodd-Frank financial reform legislation. Gee thanks, Chris and Barney. I'd hate to see what would happen if you had decided to try to make it harder for the average American. Banks stood to lose $10 billion with this new legislation, and so they came up with a new revenue plan. The plan: charge you to use what they have convinced you to use for years. They gave you a great financial tool, a debit card, got you hooked, and are now charging you for its usage. Dirty trick? Not really. But it stinks just the same. Can you say Mr. Pusherman?
So what should you do? Let me rephrase this, what should I do? This affects me as much as anyone else. Here are your choices as I see them:
- Find a bank that doesn't have the fees- This also could mean a credit union, which I happen to be a fan of. I don't think you should chase banking offers and constantly switch banks, but there are banks that have more customer friendly policies. Most of these banks are local and regional banks.
- Switch to cash- According to what I've read, you won't be charged for ATM withdrawals. So, withdrawal cash, and spend it just like you would a debit card. Unfortunately this solution doesn't work for me. I don't like caring cash for several reasons. For one, it feels like Monopoly money, and I spend through it too quickly. I'm a dumb animal. However, I'm a self-aware dumb animal. I'm not going to carry cash because I know that I will spend more money if I do.
- Bite the bullet and pay the fee- Hey, if using your debit card is worth $5 per month to you, then great. Go for it. Pay it. In fact, this honestly may be the path I choose. I haven't decided yet. Cash won't work for me and there is no way that I'm going to do option #4. My biggest fear is that people get in too much of a hurry to avoid this fee, thus causing themselves bigger problems. That is the sole reason I freaked out when I saw this news this morning. Because I know exactly what is going to happen: people are going to select option #4.
- Use credit and pay off your card at the end of the month- Well, that's the well-intentioned plan anyway. But as you know, the road to "the hot place" is paved with good intention. I have LONG been an opponent of the "use your credit card and pay it off every month" method. I find it to be dangerous for distinct reasons. A) It's easy to spin out of control with your spending and wind up with significant debt. Trust me. I see this with clients about 10 times per week. The story always starts with "we used to pay off the card at the end of the month." It happens. B) You continue to pay off your card every month...no matter how much you charge. Yeah, that's a problem. I have a number of highly compensated clients who do this. If you have an out (pay off debt by all means), then you can create a "blank check" mentality. You often times lose track of your spending because you have so much money. It's the same reason I dwindle my checking account down to $100 or less every month. Like I said, I'm a dumb animal. If I see too much money in my checking, then I will spend it down. This happens with "pay credit card off at the end of the month" people too. High credit limits plus the "pay it off by all means" attitude can create major financial underachievement.
So, what's your plan? I'm going to start with #1 if I can, and if that doesn't work, then I'll choose #3. Paying $60 per year to not waste more money is unfortunately a realistic solution to a nasty problem.
