Debit card fees may have had a chance at life if banks resorted to “traditional” methods of pricing fees.

Dust is just settling from the trail left by bankers, who ran away from plans of charging debit card fees, for now. And looking back, they’re thinking to themselves, “Next time, we’ll be complex and discreet.”

Bank of America® was the bank that ruined the party for everyone else. At its massive size, the bank took the unorthodox approach of introducing a $5 debit card fee with no market test. Also, the bank picked the worst time – when Occupy Wall Street began to pick up steam – to come out with the fee.

For everyday consumers, the fee was too easy to understand, too upfront to ignore, and too transparent to miss. That’s not how you impose a new fee.

This string of mistakes led to an industry-wide obligation to pull debit card fees.

The “Right” Way

Firstly, banks should formulate a variable debit card fee pricing model. One bank that took this approach was First Tennessee Bank. Before the fiasco exploded, First Tennessee planned to charge $0.04 per PIN transaction and $0.14 per signature transaction. For the month, customers could incur a maximum of $3 in debit card fees in a month.

The fee appears small – just cents – so it’ll take a little work for customers to accurately project how much they’d end up paying per month. This tactic is notoriously known as “nickel-and-diming”.

Then, banks need to slowly introduce the fees in certain markets – not in one fell swoop. Oddly, Bank of America® was already doing this with its new line of checking accounts, which are slated to hit the entire nation in early 2012. But, it didn’t do the same with debit card fees.

It serves as an acclimation stage that eases the consumer population into accepting the fees. Proof lies in the lack of any mention of consumer protests against Bank of America®’s new checking accounts coming next year.

When fees are ready to take a permanent place in customer accounts, just send a wordy announcement filled with technical jargon.

Obviously, use snail mail – it’s too easy to forward an email to the press.

Sticking With What Works

The debit card debacle was an example of how banks deviated from the tried-and-true methods that are used to successfully hit consumers with fees.

Banks have learned their lesson – transparency kills profits. Hopefully, consumers have learned something as well.

By spotting fees in their true forms, consumers are more capable to voice their anger, especially after having banded together to fight debit card fees. It worked once, it can work again.

Follow Simon in the Community and on Twitter: @simonzhen.

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  • Just so you know, BofA never actually announced its $5 debit card fee. Someone inside the bank leaked an internal document with details about the fee to the WSJ. So yes, the timing was horrible, but no, it wasn’t deliberate. For all we know, BofA might have been planning to announce the fee after Thanksgiving. It’s hard to criticize BofA for how it handled the $5 fee rollout because they never really got the chance to try it their way.

    • Simon Zhen

      The leak and timing of the leak surely played a significant role in public uproar but I was more interested in the fee pricing model they opted to use.

      Whether BofA chose to announce it or have it leaked, I wonder how the public would have reacted to a different pricing model (similar to First Tennessee Bank’s).

      Do you think it would have played out in favor of the big banks if they went that route?