By Tony Russo
BERLIN — Earlier this month new banking regulations went into effect limiting the amount a bank could charge a merchant for accepting debit cards. Each time a merchant swipes a card, the bank that processes the charge takes a fee. Depending upon the bank, the merchant’s volume and other factors, this fee used to be as much as 44 cents per swipe, but under the new regulations, the maximum amount a bank can charge anyone is 21 cents per swipe.
Credit cards were not affected by the legislation.
While this is excellent news for most merchants, some banks are making an effort to protect their profits by finding new ways to make their retail divisions more profitable to compensate for continued losses in other corporate departments.
Late last month, Bank of America announced its intention to begin charging account holders a $5 monthly service fee for the use of a debit card. While the fee is for the most part nominal, analysts suggest it is an indicator that many national banks will continue to find ways around new banking regulations to continue to remain profitable.
Professor Tylor Clagget, an economist at Salisbury University, said other national banks, including Wells Fargo, also announced they would be charging a similar, smaller fee.
Clagget suggested this was the beginning of a trend that may eventually result in sectioned, pay-as-you-go propositions when it comes to bank fees and services. He tells a story about a recent trip to N.Y. during which he bought a hot dog with mustard. Upon receiving his lunch, he decided it had less mustard that he usually likes. He asked the vendor to give him more mustard.
“Did I ask you to give me more money?” the vendor replied.
According to Clagget, if enough people balk at using their debit cards, banks might simply stop issuing them. Although that is an extreme example, it is illustrates the diversity of fee schedules likely to become an everyday part of life.
Consider the carry-on baggage fees or cable television, which survived outrage against changing to pay-as-you-go schemes that went on to become as accepted as rush hour traffic.
“They’re changing your habits,” he said. “The question is, ‘How much tolerance does the public have?’”
Clagget said people have so much tied up in their banking relationships they are unlikely to undergo a labor intensive change. There are automatic withdrawals, PayPal and similar accounts set up as well as mortgages and other financial instruments to consider in addition to the comfort level that goes with a long-term banking relationship.
Reid Tingle, executive vice president of The Bank of Ocean City, disagrees on at least the labor-intensive part of the statement. Although it has always been a part of its service, Bank of Ocean City employees have been streamlining the changeover process and stand ready to take away the labor-intensive aspect of the change. The new intensity is a direct reaction to the bigger banks’ service fee announcements.
While Tingle said his company finds the new regulations as odious as the other banks do, he believes in the end they will continue to capitalize on the hyper-local aspect of their bank including community ties and customer service.
Clagget said all banks have employees in the local economies and contribute both socially and economically to the communities that have branches, but Tingle said locally owned and operated banks have a little more skin in the game, especially considering their near-faultlessness in the crash the new banking regulations were created to address.
The sub-prime lending debacle left small local banks in the area untouched because they kept to their conservative lending policies and did not over extend. Tingle said local banks feel as if they are being punished with the new regulations for mistakes made at the bigger banks but won’t be raising fees or instituting new ones to make up for reductions in revenue.
While they don’t have the economy of scale to fend off the cost increases that some of the other new regulations will require, since small banks’ primary income is from loans and interest, the debit card charge changes don’t him them as hard. They were also exempted from some regulations due to their size.
It was also, Tingle said, a good year in Ocean City and the merchants there on the whole did well which only strengthens the bank’s portfolio.
He said small local and regional banks across the region particularly played it safe during the boom years, which made them all stronger. All are for-profit institutions that are just as answerable to their shareholders as larger banks are. But in his view with a very different result.
Tingle said small banks can only remain competitive by continuing to prove themselves a reliable economic engine beholden to the community. Improving their visibility and market share along the way.
“We live and work and our kids go to school here,” he said. “Our shareholders are our customers. We can’t gouge them.”