Democrats To Blame For Bank of America Debit Fees
October 5, 2011 Leave a comment
Late last week Bank of America announced that they would be charging $5 per month for debit card users who use their cards to make purchases. This prompted Democrat Sen. Dick Durbin to urge a run on Bank of America. At first glance the action by Bank of America looks outrageous. But you have to do more than scratch the surface of this story. It is in fact Dick Durbin, Democrat Senator, who is partially to thank for the new bank fee.
Last year the Democrats passed a bill that limits the ability of debit card companies to charge swipe fees. Each time you use your debit card or credit card the merchant is charged a swipe fee, for credit cards it’s around 2-3%. Debit cards have always had different fees than credit cards, often a flat fee of around 44 cents per swipe. Durbin’s law reduced swipe fees to 24 cents per swipe, a nearly 50% reduction. That has left issuers of debit cards looking for ways to make up the government ordered lost revenue.
It was entirely predictable that Bank of America would start charging debit card users for using their debit card. The Federal government has more or less shifted the cost of debit cards from merchants to banks with the banks shifting the cost to consumers. In the end consumers are paying more for products and services because of government. Government lowered the cost of swipe fees for merchants but the merchants never passed the savings onto customers. Now consumers are paying for essentially the same swipe fee plus they’re going to pay for the revenue their bank lost because of government action.
It isn’t popular to defend banks but in this case it is absolutely necessary. They’re only charging their debit card customers because government cut their debt card revenue in half. It isn’t cheap to offer debit cards, there is internal infrastructure needed to offer these cards. They’re a convenience for customers and they do cost something. Bank of America needs to make sure their accounts can be accused by merchants, they need to produce cards and make sure they get to the right people and there are hundreds if not thousands of support staff necessary for a major bank like Bank of America to offer debit cards. If they can’t charge merchants for the convenience of not having to take cash, they’re either going to pass the cost onto their own customers or they’re not going to offer debit cards.
This situation is the classic government debacle when they enter into the marketplace to support a politically connected group over a politically hated group. Government didn’t foresee or didn’t care about the consequences of their actions. Most people in Congress never bothered to consider that banks might pass costs onto their customers when revenue was taken away from them by government order. Those that did consider that possibility likely didn’t care because they hate banks in the first place and they knew they would be able to raise a stink about new fees in order to attack banks. As far as the Dick Durbin’s of Congress were concerned, forcing banks to raise fees on their customers gave them another stick with which to beat down the banks and score cheap political points.
If you’re a Bank of America customer when they charge you a fee for using your debit card remember that it is Democrats in Congress who are responsible. They forced your bank’s hand. If you think that getting out of Bank of America will save you from this fee, think again. Within a year all the banks will have this fee. Other banks may not have the fee now but after the Bank of America firestorm fades into the forgotten past (around next week) they’ll create the fee themselves. It will all be because of Democrats in Congress, you’ll have them to thank for the fees.