Skip to comments.Thank Walmart for Your New Bank Card Fee
Posted on 10/03/2011 6:30:23 AM PDT by huldah1776
When Bank of America announced last week that it would charge $5 a month to customers who make purchases with their debit card, customers railed against the bank.
Many conservatives and libertarians said the anger should be aimed at Congress and the Obama administration, which, through last year's Dodd-Frank financial regulation bill, effectively outlawed the old debit card business model, spurring Bank of America to make this change.
But the real culprit is Walmart and the retail lobby, which used government to squeeze banks and fatten their own bottom line. Walmart won, banks lost, and now customers are stuck with a new monthly fee.
Here's the background: Whenever you use a credit card or debit card to buy something at a store, the credit card processor (like Visa or Mastercard) and the issuing bank (like Bank of America or Chevy Chase Bank) both take a cut. The store may only get $9.70 on a $10 purchase.
How is that rate -- the "interchange fee" -- set? Until this year, it was set by market forces. Visa and Mastercard offer stores a service that facilitates sales and brings in more business. In return, they demand a cut of the sale. Walmart and Joe's Corner Store aren't required to accept debit cards or credit cards, but they do, which means that they decided the price was worth it.
Retailers, of course, wish the card issuers and processors would provide this service for free. Businessmen are always looking for a better deal. The businessmen in this case decided to employ regulatory robbery to get their way. Led by Walmart and the Retail Industry Leaders Association, retailers pushed for a federal cap on interchange fees.
When the Dodd-Frank financial regulation bill came up, Sen. Dick Durbin introduced an amendment giving the Federal Reserve the authority to cap the interchange fee on debit cards (but not credit cards). Durbin, in the misleading populist mold of his fellow Illinoisan, Barack Obama, painted himself as the scourge of the special interests, because he was battling against the banks. But some other special interests were firmly in Durbin's corner: the big retailers.
Melissa Merz, a former press secretary for Durbin, lobbied for Walmart on the financial regulation bill, as did former Durbin legislative aide Donni Turner. The Durbin alumna were both at the Podesta Group, and the firm's lobbying filings indicate both lobbied on "Senate financial services regulatory reform legislation."
At the same time, these retail lobbyists were helping fund Durbin's campaign. Daily Caller reporter Jonathan Strong wrote "one month after the Dodd-Frank financial reform bill passed, both of those former aides, Melissa Merz and Donni Turner, attended an Aug. 10 fundraiser for Durbin hosted by the Podesta Group. A group of lobbyists mostly from the Podesta Group gave Durbin $5,000 on Aug. 10 and a $5,000 check from Walmart's PAC cleared shortly afterward, on Aug. 27."
The returns to the retail industry were huge. As the Federal Reserve prepared its rules setting the maximum per-purchase interchange fee, a Home Depot executive told investors on a conference call "Based on the Fed's draft regulations, we think the benefit to the Home Depot could be $35 million a year."
That $35 million Home Depot gain is a $35 million loss for banks and credit-card processors. Their interchange revenue was central to the business model that allowed banks to offer free checking and free debit-card use.
That business model is now illegal, and so Bank of America has switched to the model they find second best. If they can't make the stores cover the costs of debit cards, make the consumers pay a share. The American Bankers Association calls Bank of America's $5-a-month charge "the Durbin fee."
Durbin, needless to say, doesn't like being blamed for this highly unpopular new fee. He blasted B of A for instituting the fee, calling it "unfair." Other liberals say B of A is just making excuses for fleecing their customers. But Bank of America was always free to charge a monthly fee to debit card customers. It didn't because it thought it could get more customers by charging the stores instead.
Debit-card users don't have the lobbying clout of Walmart and the retail industry. Bank of America customers can't get together and hire Durbin's old staffers.
It's the standard tale of government intervention in the economy: The guy with the best lobbyists wins, and the little guy -- this time, the consumer -- loses.
Timothy P.Carney, The Examiner's senior political columnist, can be contacted at email@example.com. His column appears Monday and Thursday, and his stories and blog posts appear on ExaminerPolitics.com.
Bank of America’s debit card fee will be a bonanza for credit unions.
Citi makes more on some products than Walmart does.
Citi did not want to lose its gravy train, so it demagogued Walmart's application and got it rejected.
So Walmart did an end-around.
I don't blame them.
Time to get out the old checkbook.
There’s some pretty muddled thinking going on in the authors head.
I suppose the next shoe to drop is retailers will start to refuse credit cards and take only debit.
Guess you haven’t heard...fees on checking accounts are increasing too.
good post. I agree
Total hogwash. It started and ended with the banks charging the stores. It’s the banks who want to fill their big pockets by charging both the stores and the card holders. High interest rates, fees, and extra charges every time you turn around and now they’re throwing in yet another charge. Here’s hoping BofA lose so many customers it puts them out of business.
I'm in the process of doing exactly that to Wells Fargo.
Cash, checks and credit cards don’t have a fee per transaction yet, do they?
If their cards will even be accepted. Because CUs and small banks aren’t subject to this regulation, their switching fee can be what they currently are; nearly twice the price fixed rate. That means a merchant has to pay 40 cents to swipe that CU card vs. 20 cents for BOFA. Will the merchant eat the bigger fee on the small bank card because he makes it up on the artificially government fixed one; we’ll see? When government forces someone to give a free lunch, the cost just shifts to someone else - ALWAYS. If everyone piles into small banks to avoid the debit card fee, they’ll have to change the regulation to cover them too. The system is not static.
Who are they trying to kid? It’s the customer who pays the fee no matter what... whether it goes through the bank or retailer, it’s just a matter of who handles the money.
Exactly. Why blame Walmart and lobbyists? They're doing what they are supposed to do: try to make money for their companies. Blame the politicians willing to be bought. I laugh when politicians blame lobbyists for troubles in politics. If politicians weren't bribable, unethical, lying scum, lobbyists would be powerless.
Mine does, actually used to get a rebate for using the card over checks.
citi just sent me a letter saying that it is going to charge $20.00 per month for the account.
problem is, it was a calfed free account when citi bought calfed. the state approved the sale as long as the free accounts remained free.
But, some stores no longer accept checks. Due to problems with bounced checks, and the ease of use of credit/debit cards, some retailers simply don’t take checks anymore.
So it’s $5 per month, not $5 per transaction. So it’s a $60 annual fee to use that debit card now.
Well, here I think we might see banks competing for business. Some banks may charge less than $5 per month, or might waive the fee if you keep a minimum balance, or give other incentives to keep the cost to the customer down. We’ll have to see if every bank charges $5 or if some charge less, or some waive it.
Before debit cards, most people probably paid cash for many routine transactions. Before debit cards were so common I’d typically withdraw $200 for walking around money, but that’s now more like $40 since I use a debit card routinely.
It’d be easy to return to carrying more cash to pay for routine transactions if debit fees seem out-of-line.
Why not just have any fees appear directly on the receipt and get charged directly to the customer?
Sunlight is the best disinfectant. The market will find the solution from there.
Banks are nickle and diming us to death
- Requiring minimimum balances (which they use for their purposes without our reinbursment) or we get a fee (again for them)
- Paying us essentially next to nothing interest rates on our savings (which they use to bolster their ‘investments’)
- More fees for non-bank ATMs
- And more fees on top of those.
And I'm supposed to blame WalMart?
No, I'll stick to blaming the government. WalMart is supposed to look out for WalMart. Dick Durbin is supposed to be our employee, working for us.
Exactly! You boiled it down to plain terms.
Seems to me there has been a lost of talk lately about some ex employee lobbying Perry about that vaccine. Lots of headlines about that one.
Interested to see how many headlines we see about Durbin caving into his ex’s lobbying efforts and THEN accepting campaign donations from the very people who were lobbying him.....
This guy is dirty and deserves to be run out of office!
Besides, Government raises fees on stuff all the time and that just falls on deaf ears.
The fees charged by banks to retainers for processing debit card purchases were outrageously high, especially considering that it cost next to nothing to process such transactions compared to the customer writing a check. So, the government intervened, even though it was none of the government’s business.
The net result was that the government limited the amount of the transaction fee. So, the banks such as BAC decided to get their pound of flesh elsewhere by instituting a $5 a month charge against checking account customers who used their debit card for one or more purchases each month.
The banks were greedy to begin with, and now that they made a bunch of money off their original greed, they do not want to give up that money and hence, the new debit card fee. As for me, a pox on the major banks and a pox on the Federal government.
Folks need either to not use their debit cards for purchases or switch their checking accounts to regional banks or credit unions which do not charge such fees. That is my plan should Wells Fargo begin charging such fees in my So Cal area, and I have been a 33 year WF customer.
Once people return to using cash, and they will, checkouts will be slower and there will be substantial labor involved in changing drawers for cashiers and more armored car services will be needed. There will be more losses from counterfeiters and a lot of time lost in making change.
The government caused this mess but the banks will not be able to get away with charging for the service. Customers are used to using it for free and will find a way to get out of the $5 pretty quickly. I will never keep money in a bank account that charges me to do so, before that happens I will simply stop using a bank.
There are plenty of banks that will be glad to let me use their services just for the benefit of keeping my money there so that they can use it while I am not. The on-line banks even pay a substantial interest to me, yes, they pay me to keep my checking account with them.
Personally I don't use a debit card. My Discover card pays me as much as 5% back on some of my purchases. All I have to do is pay off the balance each month. Using a credit card to pay for everything has other advantages. If a provider does something wrong I can easily stop their payment until they resolve the problem. I have a monthly accounting of everything I purchase.
If the credit card services stop giving me an incentive to use them I will simply use checks or if the bank wants to charge me to keep my money with them I will pay cash or money orders. I will find a way to not pay $60 a year for something they make money on anyway.
Exactly. It’s amazing how many people don’t realize they’ve always been paying for the debit card, just through the retailer. It’s a cost of business he passes on to the customer.
Though some gas stations around here give a discount for cash, which is equivalent to charging a fee for using a card.
I think a way around these boondoggles, that individual States can use to insulate themselves from irresponsible Washington and the volatile dollar, is to create a public-private partnership with a currency company to issue “debit scrip”.
If a State issues a currency, it must be back by gold and silver. But anyone can issue ‘scrip’, which is a non-legal tender alternative to currency. A State could heavily license, regulate, audit and insure a currency company to issue a heavily controlled currency with voluntary consumer and merchant buy-in.
Any citizen of that State could buy the equivalent of a renewable debit card with US dollars. And if there was massive inflation, it would be a great deal, as US dollars could inflate, but the scrip currency would not, because its prices are fixed and only change once a month.
Unlike a regular debit card, a scrip debit card would have both much better security and be easier to use, needing no special equipment, just a cell phone with a camera. This is because the front of the card has their picture, and the back of the card has an encrypted Data Matrix bar code, which is a public domain bar code that can be read by a cell phone camera.
So if either a merchant or a consumer had a cell phone, a sale could be made through the currency companies phone line and computers, transferring scrip currency from buyer to seller.
The big selling point of scrip is that it is a better deal for both consumer and especially local retailers than by dealing in dollars, much like using coupons. And yet it can be used side-by-side with dollars, whichever one offers the better deal being preferred.
When dollars become too scarce in deflation, as happened at the start of the Great Depression, scrip comes to the rescue, keeping both the market flowing and local government functioning. It was used hundreds of times, and is still used in some places in the US.
So what’s not to like? No matter how chaotic the federal government, how volatile the dollar, shortages and surpluses, scrip fits the bill, and debit scrip has a remarkably low overhead.
Big by no means, as a retailer the interchange rates became very important to me when gasoline passed the 3 buck mark. 50% or more of my gross margin on a credit card transaction goes toward these fees. At the current 3.59 per gal closer to 75%.
Debit cards provide immediate verification of the customers ability to pay and in many cases provide immediate movement of funds to the merchant. They know they will get the money, and they get it fast.
That is exactly what happens when you pay with a paper check at Walmart. If you don’t have enough money in that account the check will not be approved. If the check is approved, that money comes out of your account immediately.
I have a stupid question:
My Bank ATM card is also a debit card (I never debit) So, am I going to get whacked with a debit fee because I have the card and only use it as an ATM card?
(that’s to say if my bank jumps onto this bandwagon too)
Take a look at the costs the Banks actually incur to support their debt card transactions. It is fractions of a fraction of a penny per transaction. Banks are raking it in for next to nothing.
Well, my bank’s not going to do that. But personally I think you gotta be nuts to use a debit card anywhere than at an ATM anyway. Just use your bank’s card for ATM withdrawals and use a real card for everything else, and the fees go away.
TD Bank has now eliminated its ATM-fee reimbursement for “senior” accounts—which means those least able to do so will now have to walk through blizzards or extreme heat to get to the bank, or else carry lots of cash and become the prey of muggers.
Those are probably check verify transactions. They use the same network that debit cards use. I’m sure Walmart pays for that. I’d still rather type in a PIN than carry a check book and write a novel at the checkout. Or maybe you don’t have to make out the check since it’s superfluous at that point. I assume you have to show ID too.
Really? A transaction fee was about 40 cents. If the cost were a fraction of a fraction, let’s say .25 cents, and assuming the switches take half ( I have no idea ), that means the banks would be making 80X cost on their investment. Now that beats the heck out of Wall Street. Wonder why their stock hasn’t recovered? Actually bank stocks have been pretty mediocre forever.
You don’t have to fill out the check or sign it. The machine fills it out for you, and you get the check back along with your receipt. You don’t have to show ID if you use the system often enough. I don’t know what that limit is. The system is quick and doesn’t require a PIN. I have no idea what the whole thing costs Walmart.
I’ve posted the below on a couple of these “debit card fee” threads. I don’t guess once more will hurt:
IMHO, Congress wants us to change our method of paying for stuff. Why else would they pass regulations like this?
Fine. Ill change. Ill go to the ATM, withdraw a bunch of cash, go to the store and spend it. Everybody wins except the bank. The store wins because they wont have to pay the debit card transaction fee. I win because I wont have to pay the debit card monthly fee.
The bank will lose twice: First because my checking account balance wont be as high (Ill be carrying it in my pocket) and second because there wont be a transaction fee from the store.
And if the bank decides to charge a flat monthly fee on my debit card? Ill go to all cash and switch the debit card for an ATM-only card. And if the bank decides to charge a flat monthly fee on the ATM card? Ill go back to writing checks. And if the bank decides to start charging for my checking account? Theres always the credit union. They appear to really want my business.
The bank will NOT win. I wont let them.
The scam with counterfeiters at my local WM is they come buy high end electronics, pay with bogus bills, then come back a few days later, return the electronics, and get a refund in real bills.
I am sure this is happening a lot of other place besides WM.
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