Credit Is Money. As Is Debit

Debit cards allow consumers to access funds in their checking accounts, but consumer advocates describe the overdraft fees attached to them as a form of high-interest lending. In fact, according to the FDIC, customers can be charged an overdraft fee as high as $38 on a $5 purchase. Banks automatically recoup that fee the next time the customer makes a deposit, and with modern computers, that’s really high interest really fast!

Overdraft fees on debit cards account for about half of all overdraft fees, totaling nearly $24 billion a year. That’s a lot of credit and a lot of money, and there have been a lot of complaints about debit card fee gouging by banks.

When it comes to Cost of Services and Fees, according to our 2010 Customer Loyalty Engagement Index customers rank their banks as follows

1. Wells Fargo

2. Bank of New York

3. JP Morgan Chase/PNC

4. Bank of America

5. Citibank

Cost of Services and Fees is one of the banking category’s loyalty drivers that make a big contribution to brand loyalty, almost as much as debit fees contribute to a bank’s bottom line, so this has been a sore spot for both customers and banks.

And while loyalty and engagement metrics are leading indicators of future customer behavior, when you rank toward the bottom of the list in your category, you don’t have to look too far into the future to absolutely know what’s gong to happen: customers are going to hit you with significant penalties, generally coming in the form of significant withdrawals to other financial institutions.

Bank of America and other big banks have said they were doing consumers a favor signing them up for automatic overdrafts. But B of A changed its tune (and policy) and issued a statement that starting this summer it would just deny debit card transactions for customers that didn’t have enough funds in their account to cover charges.

But never fear, customers would, of course, have the option of linking their checking account to another account at the bank and that could provide overdraft protection for any debit card transactions.

For a fee.

Robert Passikoff, Ph.D

president

Brand Keys, NYC and London

www.BrandKeys.com