Skip to comments.The Dick Durbin Bank Fees
Posted on 09/30/2011 6:38:58 AM PDT by throwback
This Saturday, government price controls on debit card interchange fees (which card issuers charge to merchants) go into effect. The controls are the result of the Durbin amendment to last year's Dodd-Frank financial reform legislation. They were enacted at the behest of big-box retailers such as Wal-Mart and Walgreen's, which stand to gain a multimillion-dollar windfall. But the controls are already transforming the retail banking landscape.
The Durbin amendment tasked the Federal Reserve with establishing the allowable maximum interchange fees. It originally intended to slash them by 70%-80%. In response to a firestorm of criticism, the Fed cut the fees about in half, to about 24 cents per transaction from an average of 44 cents per transaction, including a one-penny allowance for fraud prevention. The new fee limits apply to any bank with more than $10 billion in assets.
Faced with a dramatic cut in revenues (estimated to be $6.6 billion by Javelin Strategy & Research, a global financial services consultancy), banks have already imposed new monthly maintenance feesusually from $36 to $60 per yearon standard checking and debit-card accounts, as well as new or higher fees on particular bank services. While wealthier consumers have avoided many of these new feesfor example, by maintaining a sufficiently high minimum balancea Bankrate survey released this week reported that only 45% of traditional checking accounts are free, down from 75% in two years.
Some consumers who previously banked for free will be unable or unwilling to pay these fees merely for the privilege of a bank account. As many as one million individuals will drop out of the mainstream banking system and turn to check cashers, pawn shops and high-fee prepaid cards, according to an estimate earlier this year by economists David Evans, Robert Litan and Richard Schmalensee. (Their study was supported...
(Excerpt) Read more at online.wsj.com ...
I do hate banks but I also hate what the govt is doing.
I’m using cash a lot more. Its harder for them to track and more expensive for the retailers to handle.
The banks now have to charge the consumer instead of the merchant in a transaction.
If free market principles apply, the merchants will lower their prices accordingly, and the consumer will simply be made more aware of the transaction fees.
In reality, the merchants will keep prices the same, and as the OP said, all blame will go to the evil banks.
I’m no fan of banks, but they have to make money.
“Im using cash a lot more. Its harder for them to track and more expensive for the retailers to handle.”
I use cash most of the time. Gas stations make paying with cash a pain. Retail store clerks look at me like a crazy old man when I pay cash. But, then I know how much money I don’t have when I spend it, and there’s nothing in the wallet. No deficit spending when you use cash as your means of payment!
I recall in late 2008 when a window manufacturer was closing down in Chicago and Jesse Jackson and the other usual suspects blamed it on Bank of America, demanding that the bank continue funding an earlier form of Solyndra. Of course the pop culture media and economic illiterates jumped on the bandwagon to blame the banks.
Sad to see the same happening now with the debit card fees. Don’t expect Durbin to held accountable as long as economic ignorance predominates within the US population.
Your post matches my sentiments. I think a lot of the problems in our economy are caused by violation of the principle that the person using a thing should be the one paying for it. In that is the reason our health care is so expensive.
If people actually had to pay what their doctor visits cost, they would not go for every little sniffle. And they would shop price. And prices would be more competitive for just that reason.
Now that the fee is at least more shifted to the customer, the customer can more control how they use their money. That is a good thing.
And like you I am no fan of the banks. Frankly, I also see this law as meddlesome. However, the card complanies do sort of have a monopoly on these fees. There are very few (but they do exist) retailers that refuse to accept credit cards, and these are botique shops like coffee, used record stores, etc. Most do it at their peril. The card companies basically were applying a boot to their neck.
Smooth move, Durban. You aim for the "fat cats" and end up splattering the "little guy" as collateral damage. The thing is, this is the typical outcome for RAT policies yet they are never called out. You have those idiot protestors on Wall St. kvetching about the cost of their education but does Wall St. set tuition rates? No, the schools ratchet up the tuition and fees as gubermint aid climbs. Those clowns should be complaining outside of the Dean's office.
“There are very few (but they do exist) retailers that refuse to accept credit cards ... “
The only downside to me is that some of those smaller retailers that accept cards will usually give you a discount for cash, (since there is no transaction fee).
People spend more when they use credit cards or debit cards. Banks and retailers love em.
—The only downside to me is that some of those smaller retailers that accept cards will usually give you a discount for cash, (since there is no transaction fee).—
Yeah. I see a lot of that. It always cracks me up when I see it because - and this is what I think it really unfair - thei PCI standards and contract clearly says that if a retailer is caught doing that they will lose their ability to accept the cards.
Retailers are actually prohibited by the card company from charging a different price for card vs cash transactions. The only reason they get away with it is that the card companies are not as diligent in policing their “legal rights” as much as BMI/ASCAP.
My credit union is just the opposite. They pay me over 6% interest on the first $500 in my savings and CHECKING account. However, if my balance goes over $500, the whole lot pays something like .02%. But I have not paid an ATM fee for well over a decade and I have never paid fees on my checking account.
It’s amazing to me how Dick Turbin gets elected.
With high gas prices, collecting cash only makes gas stations and retail stores magnets for robbery. Being a clerk at such a business is very high risk, especially with our society that doesn’t honor life. Do your clerk a favor and pay by credit or debit card.
Anybody using the prepaid Visa cards from somewhere like Wal Mart that you can buy at the checkout? That would make it easier at gas pumps, etc, to pay but I’m not sure if they take a fee out of the card when you use it.
it’s interesting to watch people at atm’s on tv blame the banks but not the politicians that created the mess.
I will tell BoA to thank DiK Durbhead when I pull all of my money out of their bank.
And I'm sure Wal-Mart and Walgreen's will be returning these savings on card fees to consumers through lower prices.
Do I need a sarcasm tag?
This is classic stuff. Squeeze a balloon at one end and the effect is seen at the other end.
Banks, like other businesses, do not operate in a static profit environment. If the government mandates a loss of income by squeezing fees to merchants by fiat, the banks have to make up the income at the other end, the consumer.
A corollary of the same process is occurring in Obamacare. The government is mandating additional coverage with the attendant increased cost. Only morons would be surprised that the cost of insurance to pay for the increased costs is going up.