On Bank of America’s Proposed $5 Monthly Debit Card Fee

So Bank of America has reacted to the new Durbin Amendment by instituting a $5 /month fee for any month in which a customer uses his debit card.  The Durbin Amendment, part of the Dodd-Frank plan, limits the amount that banks can charge merchants to process debit card transactions.  Of course, this shouldn’t have been a case of the Law of Unintended Consequences – we should have anticipated this –  JPM CEO Jamie Dimon told us previously:

“If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.”

Translation – the banks are gonna get paid one way or another. If they can’t charge the merchants, they’ll charge the consumers.  The NY Times Article notes:

“And even though retailer groups had argued that lower fees were important to keep prices in check, consumers were not likely to see substantial savings. In fact, they are simply going to end up paying from a different pot of money. “

This is actually not a bad consequence, in my opinion, although it’s probably not what Durbin intended.  Previously, debit fees were charged to merchants, and essentially resulted in (very slightly) higher prices for everyone as a result – merchants charge a little more because the had to pay a little more.  Now, in theory, if merchants pay less, and only those customers who use their debit cards pay the fee, then it becomes a user-based fee instead of a socialized fee:  that’s a good thing, in my opinion.  On the other hand, I am relying on the assumption that prices will fall by the amount that merchants are saving – which is certainly a potentially dubious assumption.

Back to the NY Times:

“The round of new charges stems from a rule, which takes effect on Saturday, that limits the fees that banks can levy on merchants every time a consumer uses a debit card to make a purchase. The rule, known as the Durbin amendment, after its sponsor Senator Richard J. Durbin, is a crucial part of the Dodd-Frank financial overhaul law.

Until now, the fees have been 44 cents a transaction, on average. The Federal Reserve in June agreed to cut the fees to a maximum of about 24 cents. While the fee amounts to pennies per swipe, it rapidly adds up across millions of transactions. The new limit is expected to cost the banks about $6.6 billion in revenue a year, beginning in 2012, according to Javelin Strategy and Research. That comes on top of another loss, of $5.6 billion, from new rules restricting overdraft fees, which went into effect in July 2010.”

Why do people use debit cards over credit cards anyway?  That’s something I don’t quite understand.   Mrs. Dynamite notes that banks (or at least, society) should  ENCOURAGE debit card use, because debit cards are a way for you to spend money that you DO have, as opposed to credit cards which can be (although are not always) a way for you to spend money that you DON’T have.  Also, banks should prefer that customers use debit cards over their antiquated equivalent – the checkbook.  Debit card processing fees positively must be lower than check processing fees.

So anyway, having said all of that – the banks will charge for services if customers allow them to.  If you don’t like it – and I don’t think you should like it – then exercise your rights as a consumer and take your business elsewhere.


disclosure – no positions in $BAC or $JPM

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