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BofA's new debit program prompts scrutiny

BofA says its new Keep the Change program is designed to help consumers save extra change. But a D.C.-based consumer watchdog group argues the bank's motives are purely mercenary and 'a blatant attempt to collect more interchange fees.'

November 29, 2005

Bank of America, the nation's largest debit card issuer, has devised a new approach to allow customers to save spare change, but one of the country's leading consumer advocacy groups says the program is designed to boost interchange fees collected from merchants.

The Keep the Change program, launched in September at more than 5,800 Bank of America branches, allows customers to round-up debit purchases by putting change into savings accounts. BofA's patent-pending program, touted as an "electronic piggy bank," is the first free savings feature tied to a debit card, BofA representatives say.

Those reps add that Keep the Change was designed to encourage customers to save more money during a time when the personal savings rate is low - less than 1 percent, according to the U.S. Department of Commerce's Bureau of Economic Analysis.

But Ed Mierzwinski, consumer program director for Washington, D.C.-based U.S. Public Interest Research Group, said BofA's new initiative is "a blatant attempt to collect more interchange fees" by boosting usage of more than 27 million BofA debit cards issued in the United States.

"I'm not at all impressed with Keep the Change," Mierzwinski said. "I believe this is part of Bank of America's strategy to encourage people to use their debit cards more often so that the bank can increase its profits by collecting more interchange fees from merchants. I think the amount they are tossing at consumers is peanuts compared to the increase they will see in interchange fees if this program is successful. The bottom line is they are trying to increase the use of debit cards to increase their profits."

By charging merchants a point-of-sale fee, typically between 1 percent and 2 percent, on debit card purchases, Mierzwinski said, BofA "stands to make a sizable profit" if the new program prompts consumers to use their debit cards more often. He also said the program is designed to encourage more small purchases with debit cards, which could lead to higher prices for items ordinarily purchased with cash.

"The cost is ultimately going to trickle down to the merchant and then to the consumer in the form of higher prices," Mierzwinski added. "If everyone uses plastic to pay for minor purchases, such as a cup of coffee, the merchants will raise the price of their goods to overcome the increased fees."

BofA officials, saying the information is proprietary, declined to respond to Mierzswinski's comments. They also refused to divulge how many customers have signed up for the program and whether the program has prompted more debit-card usage.

But according to an Oct. 19 quarterly earnings report, BofA's debit-card usage has risen, with purchase volumes soaring 28 percent from last year and revenue increasing 29 percent to $421 million. The report also stated that third-quarter net income rose 10 percent to $4.13 billion from $3.76 billion a year earlier, with a record 635,000 new retail checking accounts and 294,000 new savings accounts.

What exactly is Keep the Change?

When a customer signs up for Keep the Change, the amount of every purchase that customer makes with a BofA Visa debit card is automatically rounded up to the next whole dollar. At the end of each day, the excess above the actual purchase price is rolled into savings.

As a bonus, BofA matches 100 percent of the Keep-the-Change transfers for the first three months after enrollment. After that, the bank contributes a 5-percent match per year. The maximum match is $250 annually - an amount that is credited to a customer's savings account once a year. And BofA has not guaranteed that the matching program will continue indefinitely.

Diane Morais, a BofA executive who oversees deposits and debit products, said the Keep the Change program was launched after extensive research. "Our customers told us they want a simple way to save, so we created Keep the Change."

When the bank started its rollout in September, "customer feedback was very strong regarding KTC," said George Owen, a BofA spokesman.

The bank's incentive to offer this program is multilevel, Owen added, although he declined to cite specifics. "The bank is focused on organic growth and building relationships with its customers."