When Bank of America announced a new $5 debit card fee in late September (along with a slew of other banks), President Barack Obama condemned it, and yesterday some Democrat Members of Congress called on Attorney General Eric Holder to launch an investigation. Unfortunately, they’re setting their sights on the wrong target. Instead of taking banks to task for the new charges, they should focus their attention on the “Durbin Amendment” to the Dodd-Frank financial regulatory reform law, authored by Senator Dick Durbin (D-IL).
Statements made by individual banks and their trade associations raise questions about whether some price increases that have occurred this year have actually been coordinated… We are concerned that [Bank of America]’s announcement may be a reaction to, and participation in, price signaling or collusion that has occurred among and between banks and bank associations.
Likewise, President Obama criticized the banks’ fees and used them as an excuse to advance his Consumer Finance Protection Bureau (CFPB)–a regulatory agency with unparalleled powers and virtually no accountability:
“(T)his is exactly why we need this consumer finance protection bureau that we set up that is ready to go … (T)his is exactly why we need somebody who’s sole job it is to prevent this kind of stuff from happening. … (Y)ou can stop it because it — if you — if you say to the banks, ’You don’t have some inherent right just to, you know, get a certain amount of profit. If your customers are being mistreated.’
For these Democrats to call for an investigation into businesses reacting to “price signaling” is tantamount to alleging capitalism is illegal. And what they ignore is the real reason for the new fees. Under the Durbin Amendment, the federal government now limits the amount of money banks can charge merchants when you swipe your debit card, costing them an estimated $6.6 billion per year in revenue. Deprived of fees from merchants, banks are looking to make up the revenue taken away by the price controls.
Broken down into simpler terms, there was a cause, and then there was an effect. The cause was a new regulation that led to banks losing $6.6 billion in revenue. The effect was banks looking elsewhere to make up their costs. And when government imposes new costs, businesses can choose to transfer them to customers. Likewise, those customers can decide to take their business elsewhere.
It’s simple enough to understand, but evidently not for Washington politicians who want to demagogue banks to score populist points, divert blame from, themselves, and use the issue as an excuse to expand the power of the state.