With Bank of America's debit card scheme, we'll pay one way or another

Jar filled with pennies

Consumer outrage exploded nationwide last week following news that Bank of America would begin charging a monthly $5 fee beginning next year for the privilege of using its debit card.

The move flabbergasted investors and sent competing banks into a tailspin.

But what got lost in the public outcry was the very real possibility that BofA just took a poison pill.

In case you haven't been following its downward spiral over the past few months, America's largest bank by assets is in trouble. Big trouble.

It acquired all the trouble even a good bank could handle with its unwise acquisition of failing Merrill Lynch and struggling subprime mortgage giant Countrywide in 2008.

Financial reform slashed its income from junk fees and schemes. Litigation dogs its heels.

Then, in quick succession, the bank took a $5 billion loan from Warren Buffett, surprised Wall Street by slashing 30,000 jobs and blindsided consumers and its own industry by announcing the $5 debit card fee at a time when Chase and Wells Fargo were oh-so-delicately piloting a mere $3 version in a handful of states.

I get the outrage.

The debit card generation has never paid a fee and will soon have that experience to share with their check-writing grandparents.

But in my view, the sheer hubris of this move has to beg the question: Is this Bank of America's desperate attempt to raise much-needed capital, or is it instead the opposite, a poison pill designed to test the government's resolve that the days of "too big to fail" bailouts are over?

BofA stock has plunged from $15.31 a year ago to $6.05 on Monday.

Even uber-fan Buffett admits the debit card move isn't likely to help: "If somebody else offers a better deal, people can go to that," Buffett said Friday. "It’s just like you can change channels on television."

The industry strategy until last Friday was to slowly increase the pain on debit cards to drive consumers back to credit cards, where the balances are bigger and there's more opportunity to pile on fees.

Now it seems the bigs have only two options: Follow BofA and risk an exodus of customers or stay the course.

My hunch is, most of them will quickly regroup, abandon all debit card pain-testing programs and unfurl huge "Free debit!" branch banners to welcome former BofA customers.

But my bigger concern is that we, the taxpayers, are about to become part-owners of this huge pain in the bank.

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