Bowing to competitive pressures, Bank of America yesterday scrapped plans to impose a monthly debit card fee. The proposed charge antagonized customers and provoked vitriol from politicians all too eager to deflect blame for the dumb regulations that prompted the fee in the first place.
But as much as one might wish for an end to this whole sordid affair, this isn’t it. Nor will there be a satisfactory resolution until lawmakers reverse the policy blunder.
The debit card fees are a direct consequence of the so-called Durbin Amendment, a provision within the deeply flawed Dodd–Frank financial regulation statute. Sponsored by Senator Dick Durbin (D–IL), at the behest of major retailers, the amendment directed the Federal Reserve to regulate the fees that financial institutions may charge retailers to process debit card purchases. Following a lobbying frenzy, the Fed settled on a limit of 24 cents per transaction (on average), or 45 percent less than the customary fee. Thus the cap, which took effect on October 1, will cost banks an estimated $6.6–10 billion a year in revenue.
To the surprise of no one, banks big and small instituted (or planned for) a monthly charge on debit cards to make up for the lost revenue. Indeed, many of the free services long enjoyed by bank customers—and the source of competition among banks—are disappearing fast as a result of Dodd–Frank generally and Durbin in particular.
Bank customers were understandably infuriated at the prospect of new fees, and all the more so as Durbin inflamed passions by heaping condemnation on the banking industry (without mentioning his role triggering the whole chain of events). Against such a backlash, the banks retreated.
Just imagine if Congress were to respond to constituents’ complaints with even half the immediacy of the banks’ response to their customers.
However, consumers should be aware that different fees will make up the lost revenue. It would be naïve to conclude that banks will just accept losses. Consumers can expect fewer rewards programs, higher fees on checking accounts (including extra fees for such things as writing too many checks), and annual fees for credit cards. But it’s likely they won’t be as transparent—a perverse result of a statute intended to make the financial sector more accountable.
All of which should be blamed squarely on Durbin and the other lawmakers who evidently fail to recognize that regulations carry costly consequences. So the next time news breaks about a new bank fee, the public ought to consider whether bank officials or elected officials really are at fault. In this instance, Durbin and those who supported his amendment are to blame.