Analysts estimated that Bank of Americas debit-card fee, which it had hoped… (Kevork Djansezian, Getty…)
Bank of America abandoned plans to charge customers $5 a month to use their debit cards, marking a high-profile retreat for a fee that became emblematic of the current populist outrage against Wall Street.
The nation's second-largest bank was broadsided by customer protests — and even criticism from President Obama — after announcing the charge in September. BofA's position was further weakened as rivals including JPMorgan Chase & Co. and Wells Fargo & Co. declared they would not impose similar fees.
The uproar against BofA illustrates the deep-seated anger and resentment many Americans feel over the sagging economy. For many, the fee became a rally cry for consumer anger at the banking industry.
"It was a reality smack in the head for these companies," said Nancy Bush, an analyst at SNL Financial. "And in my view it was much needed."
The fee was proposed in response to the Dodd-Frank Consumer Protection Act, which mandated more transparent bank charges and reduced some rich streams of fees. Analysts estimated that Bank of America's debit-card fee, which it had hoped to impose next year, would have raised between $500 million and $1.4 billion annually from its 38 million non-business customers.
Bank of America Chief Executive Brian T. Moynihan defended the company's plans last month, saying that customers and shareholders understand the bank has a "right to make a profit." But the proposed fee touched a nerve among customers who rely on debit cards to pay for groceries at the checkout stand and gasoline at the pump.
The bank's actions fueled demonstrations in front of branches and corporate offices. It even prompted a Washington customer, Molly Katchpole, to collect 300,000 signatures on a website she set up to urge the bank to change course, and sparked a movement called "Bank Transfer Day" calling on customers to close their accounts at big banks by Saturday.
The bank shelved the plan.
"We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee," David Darnell, co-chief operating officer at Bank of America, said in a statement. "As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so."
The bank declined to comment further or say how it would make up for the lost revenue. BofA shares dived 6.3% to $6.40.
Analysts contend Bank of America and other major U.S. financial companies will be forced to raise other fees, such as by eliminating free checking accounts, or make up the difference with cost cutting.
"This is not the end of new fees," said Bill Hardekopf, chief executive of LowCards.com, a website that tracks card offers. "Banks may increase existing fees or raise the introductory interest rates on credit cards. They will find some way to increase their revenue, and it's always the consumer that will end up paying."
Bank of America had proposed to charge customers $5 for any month that they used their debit cards for purchases, although transactions at BofA ATMs would have remained free.
JPMorgan Chase and Wells Fargo already had announced pilot programs to test $3 fees for debit-card users in a few states, and southern regional giants SunTrust Bank and Regions Financial had fully phased in monthly debit fees of $5 and $4, respectively.
But when Wells and Chase took the no-debit-fee pledge Friday, and SunTrust and Regions canceled their fees Monday, Bank of America was forced to follow suit, citing "customer concerns and the changing competitive marketplace."
"There's still a large power differential, but I think consumers should realize they can move the marketplace when they send a very clear message about what needs to change," said Norma Garcia, a senior attorney for Consumers Union.
Garcia said that in her 19 years on the job, she'd never previously seen banks make such a shift unless required to do so by Congress or regulators. She and others warned, though, that banks might look for other ways to raise the cost of services.
It is too soon to tell whether the bank imposing and then backing off the fee plans will have a lasting public-relations effect. That is just one of a number of problems facing the beleaguered bank, which needed two infusions of government funds to stay in business at the height of the financial crisis.
Bank of America still faces billions of dollars in costs to settle a host of mortgage-related lawsuits, claims and investigations, including a probe of foreclosure practices at it and other big banks by a coalition of state attorneys general and federal agencies.
What's more, BofA last month relinquished its title as the nation's biggest bank by assets to JPMorgan Chase, which CEO Moynihan said is part of a strategy to shrink the company to focus on its most profitable customers. Pressured by regulators to raise capital and by Wall Street to increase profit, the company is already in the midst of cutting about 30,000 jobs to reduce expenses.