For the last few days I have been having a lot of discussions with our clients about the new fee Bank of America is about to implement for owning a debit card. It is all over the news and people are upset, even wanting to switch banks. I would say, be careful and check with the bank or credit union before you do that. All banks are going by the way of charging this fee, getting rid of free checking and some will even end rewards points and miles.
I had this discussion over a month ago with the branch manager of the Bank of America where I have my accounts, because I had read an article that Wells Fargo was charging $3.00 and Chase bank has rolled this program out on the east coast to see where their sweet spot is going to be (between $5.00 – $8.00 per month). This isn’t a Bank of America program, this is a bank (any bank) program. He told me that this is just what they have to do, WAMU started the “free checking” programs that caused all the other banks to follow suit and they did that based on their mortgage department being able to make up for those bank account fees, look where they ended up. Banks have to pay for their buildings, for their employees, receipt paper, supplies, fraud protection etc etc. He asked how would they pay for that? Now, don’t get me wrong I think banks make enough as it is. Trust me.
Congress has enacted a few bills that are causing banks to “lose” money. They ended the days of $35.00 overdraft fees (you know, the ones where they let you use your debit card all weekend and on Monday morning they take out ummm… let’s say your light bill for $200.00 on auto-pay and then let all the $5.00-$10.00 transactions follow, causing you the consumer to rack up a bunch of $35.00 fees). This was known as “High to Low Sort Order”, a revenue generating bookkeeping device. To read about a lawsuit that Wells Fargo customers brought against them click here. The revenue generated from overdraft fees had been rising, it was estimated at $38.5 billion in 2009 – up from $36.7 billion in 2008, when the combined net income for U.S. banks was just $10.2 billion. Five percent of customers account for 60 to 70 percent of overdraft fees. So really, the overdraft fees banks were collecting came from the people hardest hit by this economy, the ones that didn’t have the luxury of extra money in the bank that were just getting by as it was. This bill was enacted to protect the consumer, because the bank’s most profitable customer was not be the guy with the $200,000 in the CD it was the guy who banked on today’s check getting cashed tomorrow.
The second thing that hit the banks was the legislation protecting merchants. Us. Me. The small and big businesses alike. The kicker is, they are saying that imposing a fee to consumers is a reflection of Congress passing the Frank-Dodd act, limiting what banks can charge for “swipe fees”. Click here for an article about this subject. But that is NOT entirely true at all. While banks are reducing the “swipe fee”, I just received an email that my merchant processing is RAISING the percentage fee. There are two fees that happen at a register, swipe fee and processing fee. The swipe fee is the standard fee to swipe the card. Currently I think we pay about 25 cents, just to swipe the card. Then there is the processing fee. That can range anywhere from about 2% all the way up to about 7%-8% of the total transaction. In our case that is 7%-8% of the item, service, tip and sales tax. Yup, the whole total. The state of Washington does not even let us write that fee off for sales tax, so with sales tax we currently pay to collect tax for the state. Not fair. I don’t even want to collect tax for them, nevermind have to pay to do it. Then there is B&O tax, which is a tax to just do business. That is a few percentage points per transaction to have your doors open. Oops, I digress. This is a post on bank fees not tax. But if a card is used, bank fees are charged to collect all these hidden taxes (that we do not pass on to our customers) So the banks take a percentage on whatever is swiped, that’s my point. With that point comes the fact that I just received an email that they are raising that. Last year’s financial reform bill ordered the Federal Reserve to crack down on debit card swipe fees, a $16 billion pool of money from which $8 billion flows to just 10 banks. As a concession to Wall Street, credit card fees were left unscathed (here is a great article that explains it on Huffington Post) it is a long article, but very good if you want a better understanding of the big picture.
I know this is a long post. But as a small business owner I value all of our customers a great deal. I do. So much so that we are rounding the corner to our five-year anniversary in January and I have not raised our prices since the day we opened. When we opened it was a no brainer to make the financial and emotional investment of opening Bella and Max. The economy was thriving, people had jobs and five years ago I would never have imagined that people, whole families (our customers) would struggle with jobs, their mortgages and putting food on the table. But I see it all the time and it makes me sad. Yet, I too am a family embedded in this community and making my way trying to survive. My decisions are difficult. I have a family, I provide jobs to (right now) four people who, in turn, contribute to their families. I pay rent to a company that provides shop space to other people who are trying to make their way, but they need their rent to pay their mortgage. Currently we have well over 3,000 people in our client data base, all that would directly be affected should we raise our prices. Some of the decisions that I have to make don’t affect only me, I honestly realize that there is a huge… HUGE trickle down affect to the decisions I make. If I raise our prices by say $2.00 to cover the fee increases we are about to experience I know that means we could lose clients, that our stylists could suffer on their paychecks, that we might not be able to grow and expand further, that I wouldn’t be able to pay our rent and we could close our doors. I wouldn’t be able to pay my own mortgage and feed my kids and four people would be out of a job…. and the trickle goes on. So this long post about people being upset about an additional $5.00 to have a debit card, is also a post on how this is going to affect us because they are raising their fees to merchants, higher than $5.00. Currently we pay anywhere from $500.00 – $800.00 in credit card fees alone. That just went up.
So I realize that charging a fee to use a debit card isn’t as easy as snapping my fingers. Or raising our prices is as easy as changing a number on the computer and saying ok, there you go it is what it is. My business is small and it is about the relationships we’ve built and the people who walked in the door as clients and have become friends. People I’ve grown to care about, with kids we all love to see as they grow.
So, I think in this post I have given you all the information I can. There are links for more information (these links affect your life outside of Bella and Max not just here, but it is good information about debit cards and what is going on), videos and some statistics. I’ve asked for feedback on Facebook and now I am asking for it here. Would you be opposed to going to a cash only way to pay here so we can keep our prices the same? Same for cash, that is. I’m not sure that I can say the same for debit and credit cards.
I can’t get this video to embed, but please take a peek at it. Government says we have a choice, so this is their take on it. They say to small business, you don’t have to take cards, you have a choice. Take cash, take checks or take cards. All of the above or just some of the above. We (us, Bella and Max) have a choice and if we do the right thing, we can do it AND we can save our customers money. That’s really what it is all about, creating a win/win situation for all of us.