Photo: Vivian Giang
While we’re upset about Bank of America hitting us with yet another round of checking account fees, small banks are far from innocent.Your free checking account with rewards is costing somebody something, the Times suggests.
Thanks to the Durbin Amendment, consumers are finding themselves in a headlock, caught between banks’ so-called rewards and the fees they exert on small businesses.
While the Wall Street Reform Act put a cap on the fees that big banks can collect from merchants on their debit card transactions, small banks collect still higher fees on local merchants. And in fact, this is how these banks are able to offer all those great perks, like free checking accounts with rewards.
For example, the web bank PerkStreet offers customers an additional 2% refund on debit card purchases, even when customers’ bank balance drops below $5,000. They can still get 1% back, which is a pretty good deal.
Another company, BancVue, yields more than 3% in interests for its debit card users, says the Times.
But for all those perks, small banks are taking fees to your local business, and consumers should realise that they’re not the ones earning those handsome rewards.
Which brings up the issue: Who should pay for your rewards–you or your community? And in Bank of America’s defence, is paying a $5 monthly charge to hold a checking account, which would pay for your rewards on the front-end, better than skipping the monthly charge and having the merchant “buy” them instead?
Perhaps it’s time to re-evaluate the importance of rewards altogether. As Adam Levitin, a Georgetown law professor, recently put it on his blog:
“Yes, people got used to an entitlement of rewards points. They shouldn’t have. There’s no good reason for merchants to be paying for your rewards unless they get a merchant-specific loyalty benefit from those rewards. Are you really going to patronize Chipotle and order more burritos than otherwise because you’re getting frequent flier miles? I doubt it.”
Think about this when you stick it to the shop around the corner.