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The Spectacle Blog
Following the passage of the “Durbin Amendment” to the Dodd-Frank financial regulation bill — an amendment which cut the fees that debit card providers can charge merchants per transaction — Bank of America created a furor by announcing a $5 per month debit card fee.
Following an outcry from customers, including a Facebook-based call for “Bank Transfer Day” asking Americans to switch their bank accounts to accounts at credit unions by the end of this week, and with other banks either refusing to go along with debit card fees or canceling similar plans, Bank of America has announced it will not be proceeding with this particular fee.
To be sure, the Durbin Amendment has cost banks a couple of billion dollars, basically transferring those profits to retailers like WalMart (who were the major lobbyists for the legislation.) It’s the business equivalent of asking a sports fan facing a players’ strike whether he has more sympathy for the owners or the players; the usual answer — and my answer — is “neither.” The main reason to appreciate lower debit card fees is that they may allow retailers to lower prices; the main reason to oppose the current situation is that it was created by the unconstitutional and unwise insertion of a politician’s desires into a very competitive marketplace.
But there’s a broader point to be made: The wailing and gnashing of teeth that followed Bank of America’s ham-handed reaction to Durbin morphed, in part, into a wider rhetorical assault on capitalism. The Occupy Wall Street movement (which organizers of Bank Transfer Day explicitly distance themselves from) is calling for “more regulation including dictating what all banks can charge.”
Do you think any Occupy-er will admit or even recognize that capitalism — which is to say competition within the very competitive banking industry — took care of the debit card fee? To be sure, banks will still try to recover some of the revenue lost to Durbin, but even there competition will limit their latitude to extract fees from customers.
If I may offer my first-ever compliment of the Occupy movement, it is that their web page on the issue of debit card fees and bank regulation offers an honest description of the capitalist (which they call the Tea Party) take on the issue:
Tea Party believes Govt has no business getting involved. If a customer wants to pay, they can. If not, they can do business elsewhere. There’s no need to demonize the bank…just choose another bank and move on with your life. If the bank hopes to compete, it will lower its rates or fail and go out of business.
True, some banks may be fearing that a government intrusive enough to meddle in debit card pricing once is intrusive enough to try to do so again. But the key lesson of today’s actions by Bank of America and recent actions by other banks which had been considering similar debit card fees is that the capitalist/Tea Party view is right — or at least that the banks themselves believe it is. Again, I don’t imagine we’ll see one Occupy-er give credit (or debit?) where credit is due.
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More Blog Posts by Ross Kaminsky
http://spectator.org/blog/2011/11/01/bank-of-america-backs-down-tha
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Mike 3/505| 11.1.11 @ 2:08PM
Huzzah! Someone gets it! It's the market, not the government that determines fair pricing.
Regards,
Mike
Teflon93| 11.1.11 @ 2:26PM
It impacted a relatively small number of customers in the first place---anyone with something more than a single relationship with the Bank (say, checking plus a credit card or mortgage or investment account) wouldn't get charged in any case.
hmm_contrib| 11.1.11 @ 3:59PM
Question on your post: "basically transferring those profits to retailers like WalMart" How did the limitation of the fee charged by banks on their debit cards "transfer" money to retailers? Wasn't the amount charged in a transaction a profit belonging to the retailers in the first place? I thought this legislation simply limited how much of the retailers' (including small business owners) sale, which directly affects profits, went to the bank instead of staying with the retailer. Wouldn't "restored" be a better word?
Ross Kaminsky | 11.1.11 @ 5:32PM
It transferred money to retailers by altering a price which had been set by the free market. The profit did not "belong" to anyone; it was and should be negotiated between the providers and the users of debit card services, with the users in this case being more the retailers than the consumers since the retailer paid the fees (directly).
According to this story, retailers spent more than $40 million lobbying for this change.
http://dailycaller.com/2011/03.....ail-lobby/
So, no, nothing was "restored". There was no law setting a fee before and now there is. What was taken was economic liberty and that's far more important an outcome than the change in the fee itself or who ends up making more or less money.
hmm_contrib| 11.2.11 @ 12:49PM
And how many millions did the banks spend opposing it?
When you mention the free market in this case, you're referring to debit cards transaction fees. Do retailers have many choices when it comes to accepting debit cards? Are there competing firms which offer Mastercard and Visa transactions? How many choices are there for retailers to choose between? Isn't there an effective dupoly (of MC and Visa) that limits what payment options a retailer can choose? When you argue for "economic liberty", it seems to boil down to "bank profits are more important that business owners profits."
Swipe fees are the convenience and fuel retailing industry’s top pain point and second largest expense item — behind only labor costs. Credit and debit card fees at convenience stores jumped a staggering 21.6 percent to hit a record $9.0 billion in 2010, surpassing overall convenience store industry profits for the fifth straight year. As a percentage of overall sales, credit and debit card fees increased from 1.45 percent to 1.56 percent of total industry sales dollars, factoring in all forms of payment, including cash and check. Just looking at motor fuels sales, credit and debit card fees added 4.7 cents to every gallon of gasoline sold at convenience stores in 2010. Link
And to respond to your article:
Swipe-fee opponents shower Sen. Tester with campaign contributions Sounds like the banks did lobbying and campaign contributions of their own, so I don't see the "poor banks are being outlobbyied by evil WalMart" angle.
dominusveritas| 11.1.11 @ 7:22PM
Another point:
I haven't seen data to suggest that retailers actually HAVE been lowering their prices now that they are paying lower fees. Not to suggest that some won't, but wasn't the point of all their lobbying to increase their profit margin? Until and unless market pressures force them to lower prices, expect this legislative fiddling to hurt all around. Banks now have to charge someone somewhere a little more, and stores will keep prices where they know people will buy.
It's well past time to start working on a restoration of the free market system!
Cpm| 11.2.11 @ 12:58AM
It won't stop "bag of Durbin' from claiming victory.
NotBofA | 11.2.11 @ 2:58AM
Too little, too late, people are still voting with their feet and leaving BofA because they know it is just a matter of time before another fee pops up (or is hidden in the fine print). Check out www.notbofa.org for a toolkit to help you move accounts to institutions that share your values.
Guest1776| 11.2.11 @ 3:00AM
Isn't this laissez-faire approach exactly what we tried from 1979 to
2007, when inequality shot through the roof, according to the CBO?
NO! What we had is government interference into free markets and when government interferes it distorts the market and bubbles are created and popped. Take Fannie and Freddie with all their just sign here and own a home loans for instance. It created a boom as homes were in demand and put a lot of people to work building them but it was a bubble bound to pop because it was created by government forcing banks out of time tested loan standards the community organizers like Obama called racist. You know its racist for a bank to require good credit, 10-15% down and ability to pay loan with one week's pay etc...
Many people want to blame Wall St and the removal of Glass-Steagall but the fact is if that never happened there is still a banking crisis because of sub primes loans banks were forced to come up with by government that were based on the economy.
And another thing to consider is that if all those loans that were packed and sold were time tested loan standards before the government interfered then the Glass-Steagall thing wouldn't have mattered much because they would have been responsible loans where mortgages were paid regardless of slowing economy.
Pols like to have it both ways. For example Democrats are demonizing banks for not making small business loans yet require banks to have more cash on hand before making them. Dodd/Frank did that and did not address the F&F problem. Another example of government interfering into free markets is the Durbin Tax banks are now charging for debit card use. Example: Walmart and banks willfully agreed that Walmart will pay pennies per purchases using debit cards so banks didn't charge you the customer to cover their processing cost. The Durbin Tax removed that and now banks have to charge you $5.00 a month for your debit card whether you use it or not to cover the cost while Dick Durbin demonizes banks for charging that fee he forced them into charging.
Pols love to have both ways and its the same thing with the 70,000+ pages of tax code where pols are demonizing companies they tax for raising the cost of their product or service after pols raise their cost through higher taxes. Pols know those cost are always passed onto the consumer but its a win/win for them because they can then demonize the companies.
Herman Cain's 9-9-9 plan gets rid of all those hidden taxes and loopholes within the 70,000+ pages of tax code lobbyist lobby them to change etc... and when implemented 9-9-9 will result in an economic boom with cheaper products because companies will evaluate their bottom line with the money they save and lower cost trying to steal consumers from their competition. Competition is always good for the consumer and this is exactly why big corps lobby for taxes and loopholes that'll hurt their small business counterparts and exactly the reason we need a Main St President not a Wall St POTUS like Obama has been or Romney will be.
Basically at the root of the problem with the mortgage crisis is this noble but misguided idea that everyone deserves to own a home. Its not true! You deserve to ow a home when you can meet the free market standards for getting a loan. To pretend as pols do that banks want to loose money on their loans and need a bailout is nonsensical.
Guest1776| 11.2.11 @ 3:01AM
9-9-9
It's a multifaceted solution addressing many issues at once in its simplicity. I can remember another man with a bold plan that was simple "We win they lose!" and went about putting the policies in place to do just that. Herman Cain has that same sort of bold plan to solve big problems and end class warfare envy politicking as we know it.
9-9-9 encourages working poor to save which is typically the reason working poor are still WP after a decade of working. See immigrants who come with nothing and barely speak the language and live the American Dream through hard work, savings and make it.
The 9-9-9 plan encourages job growth, lowers cost for the employer which has direct correlation to pricing -good for the consumer. Also, gives people more money on their paychecks to spend/save.
If One gets $200.00 EXTRA a on their paycheck each week and the same bag of groceries One paid $200.00 for under 70,000 pages of tax code - One pays an extra $18.00 but still has $182.00 to put into savings that week or offset other taxable goods they might purchase that week. Many will see much more on their chacks that $200.00 and even the working poor will have more funds available each week.
When people are putting their money into savings accounts then banks don't need TARP bailouts the Federal Reserve printing money to supply them therefore devaluing savings accounts of the elderly and hurting the poor with inflation.
When perpetual working poor are saving they won't be perpetual working poor and they won't need government forcing banks to change time tested loan standards or F&F distorting the housing market creating bubbles.
9-9-9 takes away the catalyst for most if not all the divisive bickering ie envy politicking and class ware rhetoric as it treats everybody fairly, the same. The rich spend more because they can so they will pay their fair share.
9-9-9 allows Michael Moore or the frugal Warren Buffet to stimulate the economy and pay more taxes until their hearts content. True patriots! Moore can film a documentary of him and Buffet going around the country spending their money until they're blue in the face paying taxes. Moore can call his documentary "Warren and Me."
When we pass 9-9-9 pols will not be able to raise taxes because it will be easier for the opposition to explain how that “directly affects your life” to the consumer/voter. You’ll have a lot more people voting when you try raising their taxes. Good luck with that tax loving Democrats or even the "read my lips crowd" within the GOP establishment.
Herman Cain one simple plan addressing many problems directly at the roots and SOLVING THEM. Romney 59 of them just tweaking around the edges.
Millionaires like Romney and billionaires will be getting a tax break too and instead of hiding their money in the loopholes of 70,000+ pages of tax code, they will spend it and pay plenty of taxes. Why? How? - Because the so called “rich” spend more money by default.
Cain's plan sends the taxes to the government through the economy which means free markets will decide the winners and losers - not the government!
Teflon93| 11.2.11 @ 8:25AM
The most fundamental principle in economics is "There ain't no such thing as a free lunch."
Debit cards cost money to create, maintain, and process. Previously, the merchant paid these swipe fees. Then credit card companies---having seen a decline in their business due to competition from debit cards---successfully lobbied Dick Durbin to get these swipe fees arbitrarily limited to the point where debit cards are no longer profitable for banks.
The merchants aren't making out on this---they will lose the sales that previously went to debit cards. Moreover, the passage earlier of opt in rules for checking accounts to which debit cards are typically linked means that now a customer is far more likely to be rejected at the point of sale for their transaction thanks to insufficient funds in the checking account at that time. Customers in this situation often simply walk away, meaning the merchant loses the sale and possibly the customer depending upon their level of embarrassment.
The banking industry told the government during the comment period on the Durbin amendment that it would make debit cards unprofitable and result in billions in lost revenue to the economy.
The pressure to not charge any fees on debit cards simply hastens their demise. Banks cannot afford to provide these services for free.
Aiken_Bob| 11.2.11 @ 8:31AM
So BofA backed down -- the market worked. Someone needs to do some thinking. The debit charge was there to make up what they lost when Durbin did his thing. Now either: a) the bank eats the lost and hence screws the stockholder, b) forces itself to be more competitive which is kinda hard in an industry with low margins, c) lay off lots of folks, d) find some other way to pass this cost along and screw someone else, or e) pay someone or several in congress to write an amendment to get it back. My money is they will take option E.
Ross Kaminsky | 11.2.11 @ 8:44AM
They will do "E" if they can, but I don't think they will be able to because of the furor over the debit cards. Therefore, they will do "D"...and they already are trying with adding fees to many accounts.
2Anglico| 11.2.11 @ 9:36AM
Only people pay taxes or "fees" caused by government. No big grocery chain or bank pays these fees, WE pay. Business has been enlisted by government as a tax collector.