EDITORIAL: Durbin does it to consumers

Public pays a price for unnecessary financial red tape

Story Topics
Question of the Day

Should Congress make English the official language of the U.S.?

View results

The Dodd-Frank financial regulation bill was supposed to protect consumers. Not surprisingly, this “protection” means consumers are going to be nickel-and-dimed to death with brand-new banking fees.

Blame Sen. Richard J. Durbin, Illinois Democrat, for inserting an amendment into that crony-capitalist law to limit debit interchange fees that large banks (those with more than $10 billion in assets) can charge. Banks typically have provided debit cards free to consumers, and often included reward programs. Interchange fees paid by merchants made this possible. Now that the law has taken hold, the average fee has gone from about 44 cents per transaction to 21 cents. That might not sound like much, but in the first full week the cap was in effect, one of the largest processors in the country, Heartland Payment Systems, returned almost $1.8 million to the merchants in its network.

This adds up to big money. Interchange fees amount to about $16 billion a year for banks, and the Durbin Amendment is expected to cost banks $6.6 billion in revenue, which comes on top of a $5.6 billion loss from earlier restrictions on overdraft fees. Having lost a large chunk of their revenue, the big banks are going to look for other ways to recover.

Bank of America and SunTrust just added a $5 monthly fee on debit-card users. Wells Fargo and Chase are experimenting with a slightly lower $3-a-month fee. Other banks are charging more for using ATMs outside the network. Chase is charging for paper statements. Little by little, the burden on consumers goes up in a way that hits the ones who can least afford it the hardest. Monthly fees are often waived for customers who can keep a certain amount of money in an account or who have direct deposit - conditions that poorer customers are less likely to be able to fulfill. The Durbin Amendment interfered with a market mechanism to choose merchants to be the winners over the banks. That makes consumers, especially the poor, the losers.

The immediate reaction of the Obama administration has been to double down and demand more regulation. They say this is why the Consumer Financial Protection Bureau is needed - to go after the “evil” banks and force them to drop the new fees. But if government hadn’t distorted the market in the first place, there wouldn’t be a problem. Adding more intervention that prevents already fragile banks from earning revenue is a recipe for disaster. Once we have yet more failing banks, President Obama will just declare them “too big to fail” so that taxpayers will have to bail it out. We need to break this destructive cycle.

What the banking sector needs more than ever is a return to the discipline of the market, where returns are tied to risk. The federal government isn’t equipped to micromanage business, and it shouldn’t make the attempt.

© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.

blog comments powered by Disqus
TWT Video Picks
You Might Also Like
  • Maureen McDonnell looks on as her husband, former Virginia Gov. Bob McDonnell, made a statement on Tuesday after the couple was indicted on corruption charges. (associated press)

    PRUDEN: Where have the big-time grifters gone?

  • This photo taken Jan. 9, 2014,  shows New Jersey Gov. Chris Christie gesturing as he answers a question during a news conference  at the Statehouse in Trenton.  Christie will propose extending the public school calendar and lengthening the school day in a speech he hopes will help him rebound from an apparent political payback scheme orchestrated by key aides. The early front-runner for the 2016 Republican presidential nomination will make a case Tuesday Jan. 14, 2014, that children who spend more time in school graduate better prepared academically, according to excerpts of his State of the State address obtained by The Associated Press. (AP Photo/Mel Evans)

    BRUCE: Bombastic arrogance or humble determination? Chris Christie’s choice

  • ** FILE ** Secretary of State Hillary Rodham testifies on Capitol Hill in Washington, Wednesday, Jan. 23, 2013, before the Senate Foreign Relations Committee hearing on the deadly September attack on the U.S. diplomatic mission in Benghazi, Libya, that killed Ambassador J. Chris Stevens and three other Americans. (AP Photo/Pablo Martinez Monsivais, File)

    PRUDEN: The question to haunt the West

  • Get Breaking Alerts