There are many observations that can be made about President Obama’s remark Monday to ABC News that businesses “don’t have some inherent right just to get a certain amount of profit if your customers are being mistreated.” In and of itself, this comment reveals much about his beliefs and knowledge (or lack thereof) on economics, consumer choice, and the private sector in general.
But in the context in which it was made — Bank of America, Citi, and other banks’ recently announced debit-card and checking-account fees for consumers, which they are charging to recoup losses from the Dodd-Frank financial-overhaul law’s price controls on debit-card fees charged to retailers — what must first be said is that he was lecturing the wrong set of Fortune 500 corporations. The price controls were added to the law by an amendment from Senate majority whip Dick Durbin (D., Ill.).
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If he really wanted to point the finger at the big companies that have mistreated consumers and are reaping illicit profits, he should have addressed not Bank of America, but Walmart, Walgreens, and Home Depot. These big retailers are making a killing from the price cap — regulatory corporate welfare that they lobbied vigorously on behalf of — yet so far have not passed on any of their estimated $19 billion in savings to consumers. And even many Democrats can see what’s going on.
For example, consider this quote: “Consumers suffer when the government regulates interchange fees. . . . Merchants are able to offload their fees onto consumers[, and] retailers have no intention of passing along any savings to consumers. . . . We should not allow the federal government to dictate the terms of a private transaction — particularly in a case such as this, where government intervention would drastically harm [consumers].”
What firebreathing free-market zealot made these proclamations? None other than Debbie Wasserman Schultz (D., Fla.), the president’s own handpicked chairman of the Democratic National Committee, in a letter co-written with Rep. Kenny Marchant (R., Texas). Similar sentiments were reflected in a letter signed by 71 Democrats and 60 Republicans in June 2010 urging House-Senate conferees to strip the price controls from the final Dodd-Frank bill. Likewise, Dodd-Frank co-author Barney Frank (D., Mass.) has said repeatedly that this is the only part of Dodd-Frank he doesn’t like, and he’s offered to work with both parties to repeal it.
To be sure, there were defectors in the other direction, too: 17 Republican senators voted for the Durbin Amendment, though all but three of them would vote against Dodd-Frank at the end. And the GOP’s “Durbin Dozen” in June of this year voted against a measure by Jon Tester (D., Mont.) to delay the price controls, depriving it of the 60 votes needed to clear the Senate.
Some of these Republicans were simply hypocritical. Georgia GOP senators Johnny Isakson and Saxby Chambliss are co-sponsoring a bill to repeal Dodd-Frank, yet both voted twice in favor of these price controls, arguably the law’s most intrusive measure. Their sudden conversion to government price-setting seems to have something to do with heavy lobbying in favor of Durbin’s handiwork from Atlanta-based Home Depot, a firm that American Bankerdescribed as “on the warpath” against interchange fees. According to the New York Times, “Senator Johnny Isakson, Republican of Georgia, told SunTrust, the largest bank in his state, that this time he planned to vote against the bank and with . . . Home Depot.”
But alas, the president didn’t take the opportunity to bring up any of this history as a path forward to reform this rule.. Instead, Obama expressly took ownership of a regulation that favors the millionaires and billionaires of the retail industry at the expense of consumers and small entrepreneurs who depend on their debit cards and checking accounts.
From the very beginning, Durbin tipped his hand that his efforts were on behalf of the retail fat cats. When he introduced his amendment to Dodd-Frank in May 2010, Durbin said on the Senate floor that his measure came about after Walgreens’s CEO called him to complain that the transaction fees the company pays to process debit and credit cards were “the fourth largest item of cost for their business.”
Yet in this era of the “Buffett Rule” and bashing “millionaires and billionaires,” Durbin and other liberal proponents of these price controls never quite explained why Congress should be concerned with the routine costs of doing business for a retail chain such as Walgreens, which makes $2 billion in annual profits. Or for that matter, other retail behemoths such as Walmart or Home Depot — or Warren Buffett’s Berkshire Hathaway, with retail units from Dairy Queen to Nebraska Furniture Mart — that will benefit from this regulation-driven corporate welfare.
I hope the phrase "The Durbin Fee" becomes common practice when referring to bank's add-on debit card monthly fee, recently adapted by Bank of America. It seems to get under Durbin's skin, and there is no more deserving person than Dick Durbin who I'd like to see irritated.
I checked with my bank (IBC) in San Antonio to see if they will be instituting a debit card fee like BofA. They said 'no,' but they will be closing about half their branches in town, mostly those located within grocery stores.
The bank isn't charging more it is just transferring the fees directly to the customer.
As a previous small business owner my fee was .21 for each transaction with the debit card. That translates to 285 swipes per year or 300 to keep it round. Do you use your debit card more than 300 times per year?
As a consumer I am made about all the fees that banks place on my money. Why should I have to pay 8 dollars, in ATM fees, to take 20 out of my account. If this is how much it truly costs to get money out of my bank, I am in the wrong job I need to be a bank teller.
Everybody wants technology but no one wants to pay for it.
We used to pay a checking account fee, but now we have free checking.
We used to pay credit card annual fees but now have free credit cards.
We used to write checks and pay for the cost of printing the checks, but now we use debit cards or online bill-paying.
Walgreen's should not consider something a cost that it has passed along to the consumer already. And the increased prices applied even to items purchased with cash, so where is the estimate of windfall profit for that? (0.21 * number of cash transactions, might be the figure). And as this article points out, the costs that were already figured in are not being reduced by Walgreen's and other retailers.
If the cost was 0.21 per transaction, $5 covers about 24 transactions per month. Maybe that's a typical number. I usually have more. And I'm not with BofA.
Banks can certainly make money through other means, that entail more risk, such as making loans. I would prefer to pay a standard fee I could budget for rather than a per-transaction fee. I know I am paying it either way. I wonder what the cost of processing checks is, these days?
Technology has saved banks billions. Before debit cards, banks hired actual human beings to count cash, accept deposits, proof checks, prepare statements with old checks enclosed, etc.
The cost of a debit card transaction is far less than 21 cents. I daresay, it's less than one cent.
If we went back to checks and cash, the banks would wilt under the increased workload.
The reason CC fees went away, in addition to competition, was the repeal of usury laws; loan-sharking became legal.
Obama's knowledge of economics is lacking. Banks and companies don't pay higher taxes and fees, consumers do. This means the average person.
Banks should not have been bailed out because they don't pass on the savings. Nobody should have been bailed out. It would have ended up better than this. Price controls should not be implemented before the government can stop companies and banks from passing on the costs. Banks and companies pass on the costs, but hardly do they pass on the savings.
Poor BOA, Citibank etc. I feel so bad for them as they rake in the billions, not. And if my bank starts this, I'll simply go to a small local bank or a credit union - which I advise everyone to do.
And how long do you think before small local banks and credit unions start doing this? Statements like yours lead me to believe that you don't for regulation to protect, but instead to punish.
Sorry, mate, I find it hard to have much empathy for a)corporations whose practises have brought us to this precipitous edge of fiscal disaster and b) who are already making billions in profits.
As to credit unions, little chance most will start charging fees for using debit cards. First, they are customer owned, second they are non-profit, third they are exempt from federal taxes, so they have lots of savings there.
Local banks, maybe. But, being local, they tend to be much more accountable to the community than giant corporate banks are.
But if you love the fees, be my guest and keep paying them!
All those saving CU have are already being used, in their higher returns and lower rates to members.
So, no, they might not institute fees but they'll be hit with the costs just the same. Expect their spreads to start looking more like banks and their draw shifting to "we don't charge fees".
But hey, as long as we're screwing BoA, Citibank, ect who cares if we're doing the same to ourselves, right.
"As to credit unions, little chance most will start charging fees for using debit cards. First, they are customer owned, second they are non-profit, third they are exempt from federal taxes, so they have lots of savings there."
And they were supposed to be exempt from deposit insurance and exempt from SEC laws. Didn't happen. Oh, and simply because they are "non-profit" does not mean they are not in the business to make a profit.
I already bank at a credit union, so I don't have to worry about the fees, for now, but I will not be surprised when they come.
It is amazing to me how something we never had until a few years ago (debit cards) can become an important right requiring Senatorial and Presidential attention. It is likewise sad (if predictable) that said attention absolutely wreaks of corruption. Instead of taking the high road of telling market participants that they are on their own to duke it out in healthy competition, the gov types have to see how they can get a benefit by favoring powerful constituents or demagoging scapegoat financial firms. Despicable.
The bank regulation legislation was more perception politics than anything. The belief was people wanted the banks to get fixed, so all Durbin/Dodd/Frank could come up with was reduce revenues for banks.
One thing they overlooked: every time fraud is committed on a debit/credit card, the card-issuing financial institution has to eat the loss. This was offset by the transaction fees. Maybe the banks now need to pass the fraud losses onto the retailers that allow the fraud to occur.
Retailers have been after the banks on "swipe fees" for years, and pumped a lot of money into getting what they got in their "Durbin" amendment. They hired former staffers of the Dems and Republicans to champion their cause, and gloated about their victory openly when it came through. (They were disappointed when the fee was set at 27 cents, as they were after 3 or 4.) Everyone, except Durbin it seems, knew the banks had no alternative but to pass the cost along to their customers. What happened is the cost, formerly hidden in the selling price, is now out in the open. The sale prices will be untouched by this legislative legerdemain, so the consumer will shoulder the cost of Durbin's folly on top of prices that had been adjusted upwards under the old system.
