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Smaller banks see opening in card fees

Aim to poach Bank of America clients

Some customers of Bank of America, the nation’s largest bank, will face a $60 annual fee for using their debit cards next year. Some customers of Bank of America, the nation’s largest bank, will face a $60 annual fee for using their debit cards next year. (Paul Sakuma/Associated Press/File)
By Megan Woolhouse and Todd Wallack
Globe Staff / October 1, 2011

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Massachusetts community banks are vying to win over Bank of America customers outraged by news that the nation’s largest bank will charge debit card holders as much as $60 a year to use their cards.

Bank of America “struck the third rail on this one,’’ said Joe Bartolotta, a spokesman for Eastern Bank, based in Boston. “We think it will be an opportunity to attract new customers. People are fed up with fees.’’

The new debit card fees are the latest example of banks trying to squeeze more out of customers to make up for the cost of increased regulations, continued low interest rates, and other changes that have cut into profits. At least two other large banks, JPMorgan Chase and Wells Fargo, are market-testing fees for debit cards.

And yesterday, Citizens Bank, the second largest in Massachusetts behind Bank of America, said it is cutting back on premiums it offered for debit card uses, such as cash-back rewards and points that can be traded in for gift cards and merchandise. The changes go into effect beginning Nov. 9.

Bank of America and other major banks have blamed the new customer charges on a provision in the federal Dodd-Frank financial overhaul law cutting in half the amount that banks can charge per debit card purchase, to 24 cents from 44 cents.

A study by Javelin Strategy & Research, a financial services consulting company in California, estimated the cap could cost banks $6.6 billion a year in revenue.

Bank of America officials declined to comment on efforts by its competitors to lure its customers away.

Michael Ratty, a longtime Bank of America customer, said he has stayed with the bank despite the steady introduction of new fees in recent years. But the new debit card fee, he said, could be “the last straw’’ that leads him to switch.

The South End resident said he typically uses his debit card two or three times a day, a habit that the bank had encouraged by offering special incentives for frequent use.

“It’s not about the money,’’ said Ratty, 32. “It’s mixed signals, and it’s kind of a slap in the face.’’

The debit card fee is the most recent announcement by Bank of America about changes to its fee structure. The company, which is headquartered in Charlotte, N.C., and has 2 million Massachusetts customers, offers a type of checking account that charges $4 a month for online bill payments.

Still trying to recover from the housing bust and financial crisis, the company also recently announced plans to cut 30,000 jobs.

Consumers willing to take the time and effort to switch banks may find such moves are increasingly complicated. More customers use online and automated bill-payment programs, and Bank of America offers nearly ubiquitous ATMs.

But community bank officials said they were doing their best to take advantage of possible Bank of America defections.

Belmont Savings Bank, for example, announced it would begin aggressively marketing a “no-$5-fee’’ free debit card next week.

Rockland Trust, a community bank south of Boston, issued an announcement promoting a no-fee debit card offering double rewards.

“We don’t think it’s right for customers to have to pay to get access to their own money,’’ Ralph Valente, senior vice president of marketing at Rockland Trust, said yesterday.

“Customers should not have to worry about following a lot of rules, regulations, or paying a lot of fees,’’ he said.

Whether small banks will eventually follow suit and begin charging debit card fees remains unclear. The Dodd-Frank cap on debit card usage fees applies only to banks with more than $10 billion in assets, exempting all community banks in Massachusetts.

Some smaller banks have expressed fear that credit card companies may eventually apply the lower fees across the board, or that retailers could refuse debit cards with higher surcharges. The changes could prod smaller banks to limit their “swipe fees’’ and to turn to customers to make up any lost revenue.

Rockland Trust’s Valente said he couldn’t completely rule out adding debit card fees.

“The regulatory environment is an interesting one and I would not go on record saying, ‘There’s no way we’d ever do something like this’,’’ he said. “But my feeling right now is that it’s not customer friendly and we are not considering doing it.’’

John Rosenfeld, head of deposits at TD Bank, which has more than 1,200 locations including 154 in Massachusetts, said its call center was “on fire’’ following the Bank of America announcement.

Customer wait times were lengthy, he said, due to the volume of calls from people who wanted information about his bank’s accounts and fees.

“We don’t charge debit fees today and we don’t have any plan to,’’ Rosenfeld said.

“It’s an evolving market. What our competition is doing is creating enormous opportunity for us to grow our customer base.’’

Erin Ailworth of the Globe staff contributed to this report. Megan Woolhouse can be reached at mwoolhouse@globe.com; Todd Wallack can be reached at twallack@globe.com.