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.
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