Debit Bank Fees are Going Up. Thanks Government!

Debit Bank Fees are Going Up. Thanks Government!

Neal Boortz
June 9, 2011

For the past year I have been constantly warning you about the consequences, intended and unintended of the Dodd-Frank financial reform bill. One of those consequences that will affect many of my listeners is a provision that would cap the interchange fee, or swipe fee, that banks can charge retailers for debit card transactions. An amendment offered Democrat Senator Dick Durbin mandated that banks charge a below-cost price of no more than 12 cents each time a customer swipes a debit card. I warned you about the consequences of this government-mandated cap: customers will ultimately pay. You will pay in the form of losing your free checking account or being hit with other fees, in order to make up the projected $16 billion loss from the transaction fees. You see, these banks aren’t in business to give away their services for free or below cost. They are in business for the same reason anyone opens a business: to make money. If the government suddenly implements a mandate that will force banks to lose $16 billion a year .. they aren’t just going to shrug their shoulders and say, “ah, oh well.” That’s not the way to run any business. Instead, they will find ways to make up for the loss. Ultimately that trickles down to you, the customer. One of the certainties here is that many banks will be charging their own customers for debit card usage. Isn’t it just wonderful when government steps in with more regulation of the private sector so that some hack politicians can make points?

So yesterday, the Senate had the chance to delay the implementation of this cap. It failed to do so. The Federal Reserve will still be able to continue with its plan to implement the cap, which will take effect July 21.

What was Dick Durbin’s main selling point in this battle? Wealth envy. He argued that since the taxpayers “helped banks in their darkest hour,” now it is time for a little pay back. Upset that the banks then gave “huge bonuses” to their executives, Durbin says that he is just looking out for the little guys: "Honestly, are we going to stand here and say we can't protect small businesses across America struggling to survive?"

Mind you, the little guys may ultimately suffer at the hands of this misguided attempt at pay back. From OpenMarket.org:

Federal Reserve Chairman Ben Bernanke recently told the Senate Banking Committee that the Durbin 12-cent price caps, which will reduce interchange revenue for banks and credit unions by a much as 90 percent, “could result in some smaller banks being less profitable or even failing.”

A study coauthored by Robert Litan, vice president of the respected Kauffman Foundation that researches entrepreneurship, found that all small firms would be negative affected by the Durbin price controls.

The law of unintended consequences … although, you could argue that Dick Durbin and others know exactly what they are doing.