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Breaking News
Debit Durbin
But also blame Dodd-Frank and pro-retailer Republicans for those new debit card fees — and job losses.
Read the headlines — and your bank statement — and weep, but don’t say TAS didn’t warn you.
As I detailed here in February in “Dick Durbin Is Stealing Your Free Checking,” thanks to price controls on debit card transactions from the Durbin Amendment of the 2010 Dodd-Frank “financial reform” law, free checking is going the way of the dodo bird. The Durbin price controls on interchange fees — the so-called “swipe fees” that retailers pay to bank and credit unions that process debit card transactions, go into effect this Saturday, October 1, and are already showing more dire effects than originally predicted.
Not only is free checking disappearing at a rapid pace — a new Bankrate.com survey detailed in USA Today found that only 45% of non-interest bank checking accounts are free, down from 65% in 2010 and 76% two years ago, and that the average monthly fee for non-interest checking accounts is $4.37, up 75 percent from last year — but ordinary Americans will soon be hit by new monthly fees for using their debit cards. And new evidence shows that the price controls may be causing thousands of job losses as well.
On Thursday, Bank of America announced a new $5 monthly fee for debit card usage, citing the Dodd-Frank price caps that will force retailer interchange fees down from an average of 44 cents to 21 cents and cause banks to lose half their revenue from this service. Senate Majority Whip Dick Durbin (D-Ill.) blasted Bank of America and disclaimed any responsibility for his measure causing these new fees. “It’s overt, unfair and I hope their customers have the final say,” Durbin told the Hill.
But thanks to Durbin’s rule, BofA’s customer and other ordinary consumers may have nowhere to go. According to the Associated Press, regional banks are following suit: “SunTrust, a regional bank based in Atlanta, began charging a $5 debit card fee on its basic checking accounts this summer. Regions Financial, which is based in Birmingham, Ala., plans to start charging a $4 fee next month.”
And the Texas community bank International Bancshares dealt with the revenue loss from the price controls in another way. Last week, the firm announced it was closing 55 branches in grocery stores and shedding 500 jobs. And speaking of jobs, the Durbin Amendment was cited as a factor in BofA layoff of 30,000 of its workers by a Wall Street Journal editorial.
THE IRONY OF THESE DEVELOPMENTS is that if the media and politicians wanted to blame a greedy big business for these new consumer costs, there is one industry that would accurately fit the bill. This would be the giant big-box retailers that lobbied for these price controls to fatten their bottom line.
Durbin even invoked lobbying from the nation’s biggest pharmacy chain, Deerfield, Illinois-based Walgreens, when he introduced his amendment to Dodd-Frank in May 2010. Durbin said on the Senate floor that his measure came about after the company’s CEO called him to complain that the transaction fees Walgreens pays to process debit and credit cards were “the fourth largest item of cost for their business.”
Yet in this era of the “Buffett Rule” and bashing “millionaires and billionaires,” Durbin and other liberal proponents of these price controls never quite explained why Congress should be concerned with the routine costs of doing business for a retail chain such as Walgreens that makes $2 billion in annual profits. Or for that matter, other retail behemoths such as Wal-Mart, Home Depot, or Buffett’s Berkshire Hathaway, with retail units from Dairy Queen to Nebraska Furniture Mart, that will benefit from this regulation-driven corporate welfare.
In the Hill article, Durbin reiterated his strange belief that bank, but not retailer, profits were somehow illegitimate. “These hidden fees were designed to boost big-bank profits by charging small businesses and merchants every time a debit card was swiped,” Durbin exclaimed. “And profit they did.”
But what exactly is so wrong about making a profit by charging merchants for a service that improves their bottom lines. Under the current system, ending on Saturday, retailers pay a fee averaging 1.19 percent on each debit card purchase. In return they get more sales and the guaranteed payment for all purchases that was lacking in the “good old days” of bounced checks.
But Dodd-Frank does not even allow banks and credit unions to charge retailers a fee that covers their costs, let alone make a profit. The Durbin Amendment only allows interchange fees that are “reasonable and proportional to cost” and only “incremental costs” can be considered. Starting Saturday, the Federal Reserve’s price caps under this rule will prevent banks from charging more than a range of 21 cents to 25 cents per transaction, whether that purchase is for $1 or $10,000.
So it was always inevitable that much of these costs of processing debit cards — including the upkeep of sophisticated technology and combating fraud and identity theft — would be transferred from retailers to consumers. In setting the price controls, the Fed almost invited banks and credit unions to engage in this cost shifting, “helpfully” pointing out that “the interchange fee standard would not limit the ability of an issuer to earn revenue from other sources, such as charging fees to cardholders.”
But don’t worry, the retailers and their lobbyists proclaimed in support of this rule, we’ll pass on our billions in savings to our customers. But strangely, there are no “Durbin discounts” being advertised in sales brochures for this weekend. Politico reports that “the savings for consumers on the retail side continue to be mostly theoretical” and quoted the general counsel of the National Retail Federation as saying merely that “companies are exploring it.”
Don’t hold your breath waiting for retailers to pass on their windfall. A study by the U.S. Congress’s Government Accountability Office found that after Australia enacted interchange price controls for credit cards, there was “no conclusive evidence” that any of the Aussie retailers’ $1.1 billion in savings had been passed on to consumers
About the Author
John Berlau is Senior Fellow for Finance and Access to Capital at the Competitive Enterprise Institute and blogs at OpenMarket.org.
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Michael Tomlinson| 9.30.11 @ 6:47AM
This is an illustration of Democrats at their "best." A President Rick Perry would have no problem signing legislation repealing this Democrat nonsense at the same time he's signing the repeal of Obamacare (just don't see Mitt or Chris doing that).
JFGalt| 9.30.11 @ 12:24PM
Don't count on Perry to do what you think he would.
TrueBlue| 9.30.11 @ 6:41PM
He has a bad habit of doing what he thinks is politically expendient at the time. Unfortunately that means he listens to polls, which are far too easy to skew toward one view or another.
Timothy L. Pennell| 9.30.11 @ 7:41AM
Are the people of Michigan RETARDED? Are they Mentally Challenged. I know that Blacks, in America have some kind of a SLAVE GENE, that keeps them beholden to the White Liberal Massa, NO MATTER WHAT, but, what about the rest of you?
What has Dick Durbin done for Michigan, other than drive businesses away? Raise Taxes? Destroy lives?
He's so beholden to a Criminal Operation (UNIONS) that he will do ANYTHING for them, no matter the costs, to YOU.
Keep sending these guys back to Washington, and, before you know it, a whole lot of Shovel Ready Construction Jobs will appear.
Jobs BULLDOZING Michigan's Cities.
John Drake| 9.30.11 @ 7:53AM
Durbin is, unfortunately, from Illinois. Another piece of democrat trash that oozes continually from the Land of Lincoln. Poor Abe has been spinning in his tomb down in Springfield for decades now....I am embarrassed to tell people I'm from Illinois; 4 governors in the past 50 years have gone to jail, 1,500 public service employees from Cook (I mean Crook) County (includes City of Chicago) have gone to jail in the past 40 years and the worst president in U.S. history came from here (at least he wasn't born here, but neither was Lincoln). I can't wait to retire and get the he$$ out of Illinois.
Timothy L. Pennell| 9.30.11 @ 8:06AM
Ouch.
So, just put ILLINOIS, everywhere I had Michigan.
The Story is the same.
jothepro| 9.30.11 @ 8:25AM
Hey Timothy, Durbin would fit right in with Stabenow and Levin. But, we here in thr Great Lakes State will make sure Stabenow is history in 2012.
Beau Blotz| 9.30.11 @ 8:33AM
They are all interchangeable and equally worthless.
TrueBlue| 9.30.11 @ 6:44PM
What do you expect? The whole state is mob controlled and has been for decades.
MOBSTER| 9.30.11 @ 8:00PM
HEY! I resent that; these freakin' guys are emphatically not controlled by us (we don't do business with these panty waste, half-wit, sackless pukes).
Dan Hirsch| 9.30.11 @ 11:49AM
And he did refer to our troops as "Nazi stormtroopers..."
Waiting for an apology for that one, out here with the crickets...
DTOM
Shamus| 9.30.11 @ 3:31PM
Actually, Durbin did offer an apology for his bizarre comments, but only after Mayor Daley (who had a son in the military) threatened to put his boot up this little rodent's backside.
J.C.Eaton| 9.30.11 @ 8:52PM
If that's what it took, this oozing pustule of a man still hasn't apologized. What venal scum the Democrats produce.
Intelligent Design| 9.30.11 @ 7:43AM
The Dodd-Frank legislation dictates and reduces "swipe fees" that banks charge merchants to handle debit card transactions. As a result, most major banks have announced plans to charge their depositors monthly debit card transaction fees. For example, Bank of America customers will pay about $60 per year in new fees.
Congress is wrong again, by trying to dictate prices. Dodd-Frank should be repealed in its entirety. It's a drag on the free market economy.
Mr. Tomlinson is exactly right. Perry would work to repeal it, while Mr. Romneycare would do nothing.
Michael Tomlinson| 9.30.11 @ 8:12AM
Let's not forget that it was Durbin who described America's military as Nazis and Pol Pot's murderers.
Drunken Sailor| 9.30.11 @ 10:41AM
Ah yes, another gem from old Turban Durbin
WilliamInWien| 9.30.11 @ 8:42AM
Fees, Fees and More Fees....From Ding Bat Durbin to the Airlines to County Governments! A $30 Illegal Left Hand Turn citation costs an additional $63 to process since it is performed by county employees. A notarization of a vehicle ownership document by the Dept. of State overseas cost almost $100 for a four minute process. I cannot figure out all of the special fees on my telephone bill due to the special language they use to disguise what you are being billed for. The more you look, the more you find!
sjccoach| 9.30.11 @ 8:48AM
Don't pick on Durbin alone. Look at Chambliss and Isakson. This shows how corrupt and crooked all of our legislators are. They are following the orders of the companies, Walgreens and Home Depot, who own them. It would be interesting to find out how much money they got from these companies.
Johnny H| 9.30.11 @ 9:05AM
I'm a small contractor struggling to make a buck in a really crappy economy (understated for effect).
My Regions Bank commercial account will go from free to $228 per year starting Saturday. That's almost half my liability insurance premium.
Dick Durbin, Christpher Dodd, Barney Frank... may a pox be upon them. Oh, and let's not forget Nancy Pelosi, Harry Reid, Henry Waxman, Charley Rangel, Chucky Schumer... jeez, I could go on and on.
John Berlau | 9.30.11 @ 9:41AM
Johnny H,
Thanks for sharing that, although I'm sorry your fees shot up like that.
That's actually a point I've been trying to make. These price controls hurt entrepreneurs as well as consumers, because entrepreneurs also use debit cards and checking accounts.
Can you please email me at jberlau@cei.org to tell me more about your experience? I will keep everything in confidence unless you tell me otherwise.
Thanks,
John
Melvin| 9.30.11 @ 9:14AM
People, can we surmise that the increase in Bank Fees was the true intent all along, and the financial reform package was merely the vehicle to make this amongst other things happen under the guise of,
"Looking Out For The Little Guy?"
Keep in perspective that the Banking Industry has many Congressmen and Senators on they're payrolls.
NYMPH| 9.30.11 @ 10:18AM
This is what the idiots in DC don't understand. Businesses are in the business to make money or profit, if you will - period. Why else would you open a business? Seriously. If you legislate away one of their revenue streams, they will find a new path to compensate for the loss. That path always comes from the consumer, either in new or increased fees or charging higher prices. And there are always unintended consequences. For instance, many people will cancel their debit cards once their banks start changing them for the pleasure. Now, these same people will go back to writing checks. Writing checks slows down the check out process. Think about it. When you are waiting in line at Wal-mart and the person at the checkout whippes out his/her checkbook, admit it, you groan to your self and roll your eyes.......I just sayin'
JP| 9.30.11 @ 11:06AM
A rule of thumb is that once the cost of a product or service goes up beyond common sense, the less people will use it.
I suspect many consumers will simply go back to using cash or checks.
Dan Hirsch| 9.30.11 @ 11:50AM
Inevitably...
DTOM
Pecos Pete| 9.30.11 @ 12:02PM
Repeal, repeal and repeal. Defund, defund and defund. Applies to all federal gubmint regulations.
David W| 9.30.11 @ 12:03PM
Typical , stupid, useless involvement by Government. They can't keep their hands off the private sector and have to try to pick winners and losers in all sorts of areas. They can never, never, never understand the idea of unintended consequences. And we the tax payers and consumers are constantly being shafted by Congress and the business that have them in their back pockets. This is why the government must be shrunk.
Pat| 9.30.11 @ 1:29PM
Cute story but John Berlau wants you take his word on Sen. Durbin being a high priced Washington call girl who sells his political favors for money. And though we definitely believe you John, your story doesn’t give us all the nitty-gritty details on how Durbin and his pals engineered this latest government swindle. Now, we all know that the specific pocket the debit card fees will end up in – the bank, the retailer, the consumer – isn’t an issue of vital importance to Americans, although to those Americans who will benefit financially from this legislation, it is very important. And if our laws don’t just re-write themselves, then who first approached Durbin to arrange the deal? A lobbyist sporting an Armani suit and armed with high gloss business cards – that goes without saying, but which lobbyist and which industry group retained his services – oh, and for how much?
And what kind of deal was Durbin offered to sell his vote? Be realistic here, it cost millions of dollars to be elected Senator for just one term and their votes certainly aren’t sold for 2 free tickets to Gator World. Of course, neither is their vote paid for by passing over a brown paper sack stuffed full of $100’s and a free night on the town with a 20 year old beauty hooking her way through college. This isn’t Chicago we’re talking about, it’s Washington D. C.. Subtle, not crude, accurately describes how you bribe a United States Senator. And Durbin needed to spread additional favors among his fellow elected prostitutes as a means to secure their support in passing this “vitally important” legislation.
So, the vast underground market which services federal politicians when selling out their constituents swung into action. The scenario was probably something like this: Durbin’s long term mistress got an expensive facelift and tummy tuck from a high priced plastic surgeon who needed a break on zoning rules for his new clinic to be pushed through by a city councilman who needed a favor from a state legislator to get his son accepted into a prestige college. The state politician, in turn, needed Washington’s influence securing long term funding of legislation important to his Party bosses.
If you have young kids, then you’ve no doubt watched “The Lion King” at least 19 times so recall the scene where Mufasa explains the Circle of Life to his son Simba – same thing really except the Prideland is Washington and it’s the Circle of Favors we’re talking about here. It’s not a simple matter to follow the meandering trail of soft bribes, favors and influence peddling within our government’s lawmaking activities - straightforward bribery has become far too risky to engage in these days but our lawmakers have risen to the challenge and found many more subtle ways to preserve the game.
And, it isn’t John Berlau’s fault he doesn’t report all those juicy details which greased the skids, the New York Times doesn’t report them either. No one wants us citizens to know the exact details – knowing all the details might further shake our already shaky faith in our government. As Americans, we’re far too cynical to believe this legislation was actually needed, but at least we could be mildly entertained with the inside story on how Durbin pulled it off.
Strudwick Wickerwire| 9.30.11 @ 2:00PM
Even with everything that was predicted about Dodd-Frank, aren't the words of Nancy Pelosi sadly relevant: "We have to pass the bill so you can find out what's in it..."
StanO| 9.30.11 @ 2:26PM
Keep in mind that debit card fees are already lower than most credit card fees. The majority of sales at least for my company are still credit cards anyways.
What's next, control bank fees and then the banks just stop issuing the cards or require a credit check to open an account.
bob alou| 9.30.11 @ 8:40PM
In keeping with my policy of never letting anything Dick Durbin does pass without expressing this simple truth; Dick Durbin is a complete jackass and always will be.
IX-XI| 9.30.11 @ 11:14PM
They'll always say they're imposing these costs on "the banks," when what they are really doing is imposing these costs on "the customers."
This is a massive giveaway to fat cat retailers, five dollars a month more out of your pocket, Mr. and Mrs. America.
Nice| 10.1.11 @ 4:56AM
Waiting for an apology for that one, out here with the crickets...
http://www.bestbootsforsale.com
Nice| 10.1.11 @ 4:57AM
What's next, control bank fees and then the banks just stop issuing the cards or require a credit check to open an account.
http://www.discountsunglassesforsale.com
http://www.wholesalehatsshopping.com
Oldefarte| 10.1.11 @ 2:16PM
Once again, IT'S THE DEMOCRATS, STUPIDS! They passed D-F under the guise of helping the little guy/middle class; and this result was/is predictable. Private businesses are profit oriented [for those too ignorant of same], and depend upon same for their economic/financial survival. Being FOR PROFIT, if their net income/profit is deminished/lessened by governmental regulations/increased taxiation etc that increases their costs of doing business and thus lowers their profits, naturally they will increase their income/revenue by raising their prices [and that is what's occurring here]. Governmental price fixing [through regulation] never succeeds, as the private businesses effected will seek ways to pass on those added cost burdens by charging their customers more/higher prices. To repeat....IT THE DEMOCRATS!!!!!!!!!!!!!!
POST American| 10.1.11 @ 11:59PM
--------------------BOTTOM LINE----------------------
Republicans and Democrats have been GONE
for decades.
There's ONLY the capstone 'age---enda'.
BTW ---when are we going to get that
first article on the legacy of the Globalist
RED China set up, sellout and TREASON OP?
Drop the Rock--eF--L--O/ Tavistock programming and 'bennies' ---n' get on it!
------------------------THANKS--------------------------
Dan Mathewson| 10.2.11 @ 5:47PM
Not gonna happen. To quote Paul Johnson ..."conspiracy theories are the American intellectual disease.
Michael| 10.2.11 @ 8:06AM
Retailers cannot pass the savings along to their customers. They need the extra money so they can reimburse the politicians for the favor!
Jack Parr| 10.4.11 @ 10:38AM
For all those who still entertain the thought that it's Democrats vs. Republicans, do the math. The retail giants wanted a larger piece of the pie. The banking industry wasn't about to give up anything. Simple solution: enact legislation that appears to protect the consumers while in reality paves the way to greater profits for the behemoths. It really doesn't matter on which side of the aisle they sit.