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Bank of America Corp reversed course on Tuesday and scrapped plans to charge a $5 per-month debit fee, handing a victory to consumers and protesters angry with big banks.
The second-biggest U.S. bank was under pressure to make the change as rivals backtracked from plans to charge customers for using their debit cards. Bank of America said that the move was in response to customer feedback and competition.
"It's a sign of consumer power in action," said Norma Garcia, manager of the financial services program for Consumers Union. "This is a sign of the marketplace working."
Last week JPMorgan Chase & Co and Wells Fargo & Co decided to cancel test programs, while SunTrust Banks Inc and Regions Financial Corp said on Monday that they would end monthly charges and reimburse customers.
Banks began charging the fees to make up revenue lost to a law that slashes the fees they charge retailers when consumers swipe their cards.
The customer fees sparked a firestorm of criticism from consumers and politicians, and many smaller banks and credit unions shunned the practice.
U.S. Sen. Richard Durbin, the author of the provision that limited debit card swipe fees for retailers, told reporters on Capitol Hill that the reversal by major banks proves consumers will walk away from banks who they feel aren't treating them fairly. "I hope the banking industry learns from this," the Illinois Democrat said.
Anti-Wall-Street protesters, who set up camp in a New York City park more than six weeks ago to demonstrate economic inequality, also claimed the move by Bank of America as a victory, but one they shared with several other anti-bank initiatives.
"This is what the movement would consider a very, very small first step on rectifying an oppressive dynamic between the financial services industry and the 99 percent," said Ed Needham, a spokesman for the Occupy Wall Street movement.
With banks ending the fee, there could be less consumer interest in the Bank Transfer Day campaign, which encourages people to close their accounts at big banks and move their money to credit unions this Saturday.
Kristen Christian, a 27-year old Californian, started the campaign on Facebook on Oct. 4.
But Jennifer McMenamin, who runs a photography studio in Baltimore, said even with the fee disappearing, she still plans to move her money to a different bank.
"We will be closing Bank of America out," said McMenamin, who is moving personal and business accounts to PNC Financial Services Group Inc.
BANK's COMMUNICATION SKILLS "NEED WORK"
Bank of America, which planned to start charging the fee next year, began softening its stance last week. The Charlotte, North Carolina, bank planned to give customers more ways to avoid the charge, such as maintaining minimum balances, having paychecks direct-deposited or using their Bank of America credit cards
"We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee," Bank of America Co-Chief Operating Officer David Darnell said in a statement.
The reversal is another embarrassing about-face for Bank of America Chief Executive Officer Brian Moynihan. Last spring, he disclosed plans for a modest dividend increase this year, only to have the Federal Reserve Board deny the request.
Nancy Bush, a longtime bank analyst and contributing editor at SNL Financial, said she was surprised the bank backtracked after Moynihan's "flip-flop" on the dividend.
"If you're going to set a policy, set a policy," Bush said. "Talk it through beforehand, think through the ramifications and stick to your guns."
Bank of America's third-quarter results show Moynihan is making progress in turning around the company but his management team's communications skills "still need work," she said.
Bank of America has said lost swipe fees will cost it about $475 million per quarter. The revenue loss comes as the bank is trying to build capital to cover mortgage losses and meet new international standards.
"We will continue to initiate actions to mitigate lost revenue when and whenever possible," said bank spokesman Anne Pace, referring to the impact of new regulations.
The bank doesn't plan to make a debit fee part of new account offerings that the bank is rolling out nationwide next year, she said.
Shares of Bank of America fell 6.3 percent to $6.40 on Tuesday. The KBW Bank Index declined 4.9 percent after a proposed Greek referendum threatened to upend a European bailout plan to contain the sovereign debt crisis.
(Reporting by Rick Rothacker in Charlotte, North Carolina; additional reporting by Thomas Ferraro in Washington and Michelle Nichols in New York; editing by Gerald E. McCormick, Andre Grenon and Bernard Orr)