Thank Walmart for Your New Bank Card Fee

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 tcarney@washingtonexaminer.com. His column appears Monday and Thursday, and his stories and blog posts appear on ExaminerPolitics.com.

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.

Pretty slick. I wonder who's responsible if someone steals your checkbook and goes Christmas shopping at Walmart since it sounds possible that they may not verify your identity. The same thing happens at some gas pumps, but they do have limits in place to keep thieves from emptying your account. Will Walmart cover you, or is it left to the evil banks to make you whole?

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. I’ll change. I’ll 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 won’t have to pay the debit card transaction fee. I win because I won’t have to pay the debit card monthly fee.

The bank will lose twice: First because my checking account balance won’t be as high (I’ll be carrying it in my pocket) and second because there won’t be a transaction fee from the store.

Screw Congress.

And if the bank decides to charge a flat monthly fee on my debit card? I’ll 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? I’ll go back to writing checks. And if the bank decides to start charging for my checking account? There’s always the credit union. They appear to really want my business.

The bank will NOT win. I won’t let them.

There will be more losses from counterfeiters

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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