Lawmakers Urge BofA Customers to Quit

By Phil Mattingly - Oct 5, 2011 5:20 AM GMT+0700
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Rep. Brad Miller, seen here in 2009, introduced a bill today that would bar banks from imposing fees on customers who close accounts. Photographer: Scott J. Ferrell/Congressional Quarterly/Getty Images

A top Senate Democrat is urging customers to stop doing business with Bank of America Corp. (BAC) to protest new debit-card fees, and a House lawmaker is proposing a measure that could make it easier for them to quit.

Representative Brad Miller, a member of the Financial Services Committee, introduced a bill today that would bar all banks from imposing fees on people who close accounts, calling the proposal a response to the Charlotte, North Carolina-based company’s plan to charge some debit customers an additional $5 a month for using the cards.

“As megabanks flirt with menus of new fees, an increasing number of Americans will want to switch banks,” Miller, a North Carolina Democrat, said in a statement. “That is the way things work in a competitive, free market as unrepentant banks are still trying to rake in vulgar profits.”

Miller’s comments followed more pointed criticism from Senator Richard Durbin, the Illinois Democrat who successfully pushed for legislation restricting the amount banks could collect from retailers for debit transactions and called for. In comments on the Senate floor yesterday, Durbin called on Bank of America customers to “get the heck out of that bank.”

The two lawmakers spoke out after President Barack Obama questioned whether Bank of America has an “inherent right” to charge the new fee, which the company said was aimed at making up revenue lost because of the limits on so-called interchange.

Reduce Revenue

Bank of America, the biggest U.S. lender, is joining rivals including JPMorgan Chase & Co. (JPM), Wells Fargo & Co. (WFC) and SunTrust Banks Inc. (STI) in rolling out new charges for debit-card users as Dodd-Frank Act rules imposed by the Federal Reserve take effect this month. The limits may reduce annual revenue at the biggest U.S. banks by $8 billion, data compiled by Bloomberg Government show.

The new rules cap the fees at 21 cents, plus 5 basis points of the total and a conditional 1 cent for fraud-prevention, replacing a formula that averaged 1.14 percent of the purchase price, or about 44 cents.

Bank of America is already facing pressure from the European debt crisis and concerns over the legal liability associated with its mortgage business.

“New regulations on debit card interchange fees -- which provide no apparent benefit to consumers -- will further reduce revenue by additional billions of dollars,” Larry DiRita, a spokesman for Bank of America, said in a statement.

The bank yesterday fell below $6 in New York for the first time in more than two years. The shares today rose 23 cents, or 4.2 percent, to $5.76 at 4:15 p.m. in New York Stock Exchange composite trading.

Backs of Customers

“Your decision to charge a new monthly debit fee is an overt attempt to make even more profit off the backs of your customers,” Durbin wrote to Bank of America Chief Executive Officer Brian Moynihan in a letter released yesterday.

Lawmakers and regulators also received a request today from the Consumers Union, an advocacy group based in Yonkers, New York, to investigate whether the fee was needed to maintain business operations or would be used solely to boost profits.

“This fee appears to be unreasonable and unrelated to the actual cost of processing debit card transactions,” Pamela F. Banks, senior policy counsel for the group, wrote in letters that were sent to the members of the Senate Banking Committee and House Financial Services Committee, as well as the Fed, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency and Consumer Financial Protection Bureau.

Closing Fees

Miller’s bill would ban banks from charging closing fees to customers looking to move their account. The measure also would require the bank to close the account within 48 hours of receiving the customer request and limit a lender’s ability to report negative balances from closed accounts to credit reporting firms.

As a member of the House minority, Miller would need support from Republicans who opposed Dodd-Frank to advance his bill. Durbin said in a conference call with reporters today that he has no plans to introduce additional legislation.

In response to a question about Bank of America’s plan yesterday during an interview with the ABC News and Yahoo! Web sites, Obama said it was his “hope that you’re going to see a bunch of the banks say this is not good business practice.”

Richard Hunt, the president of the Consumer Bankers Association, said today that he was “very disappointed” by Obama’s remarks.

“Recent announcements from banks across the country regarding new fees for debit purchases and eliminating free checking are all widely predicted consequences from the government price controls in the Durbin amendment,” Hunt said.

Durbin pushed to include the debit-fee provision in last year’s financial-regulation law to cut down on the fees gas stations, convenience stores and large retailers like Wal-Mart Stores Inc. (WMT) and Target Corp. (TGT) face when they accept debit-card transactions. The fees can be the second-highest cost the retailers face after labor.

To contact the reporter on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net