TANSTAAFL


Thank Wal-Mart for your new bank card fee

When Bank of America announced last week that it would charge $5 a month to customers who make purchases with their debit card, customers railed against the bank.

Many conservatives and libertarians said the anger should be aimed at Congress and the Obama administration, which, through last year’s Dodd-Frank financial regulation bill, effectively outlawed the old debit card business model, spurring Bank of America to make this change.

But the real culprit is Walmart and the retail lobby, which used government to squeeze banks and fatten their own bottom line. Walmart won, banks lost, and now customers are stuck with a new monthly fee.

Here’s the background: Whenever you use a credit card or debit card to buy something at a store, the credit card processor (like Visa or Mastercard) and the issuing bank (like Bank of America or Chevy Chase Bank) both take a cut. The store may only get $9.70 on a $10 purchase.

How is that rate — the “interchange fee” — set? Until this year, it was set by market forces. Visa and Mastercard offer stores a service that facilitates sales and brings in more business. In return, they demand a cut of the sale. Walmart and Joe’s Corner Store aren’t required to accept debit cards or credit cards, but they do, which means that they decided the price was worth it.

Retailers, of course, wish the card issuers and processors would provide this service for free. Businessmen are always looking for a better deal. The businessmen in this case decided to employ regulatory robbery to get their way. Led by Walmart and the Retail Industry Leaders Association, retailers pushed for a federal cap on interchange fees.

When the Dodd-Frank financial regulation bill came up, Sen. Dick Durbin introduced an amendment giving the Federal Reserve the authority to cap the interchange fee on debit cards (but not credit cards). Durbin, in the misleading populist mold of his fellow Illinoisan, Barack Obama, painted himself as the scourge of the special interests, because he was battling against the banks. But some other special interests were firmly in Durbin’s corner: the big retailers.

Melissa Merz, a former press secretary for Durbin, lobbied for Walmart on the financial regulation bill, as did former Durbin legislative aide Donni Turner. The Durbin alumna were both at the Podesta Group, and the firm’s lobbying filings indicate both lobbied on “Senate financial services regulatory reform legislation.”

At the same time, these retail lobbyists were helping fund Durbin’s campaign. Daily Caller reporter Jonathan Strong wrote “one month after the Dodd-Frank financial reform bill passed, both of those former aides, Melissa Merz and Donni Turner, attended an Aug. 10 fundraiser for Durbin hosted by the Podesta Group. A group of lobbyists mostly from the Podesta Group gave Durbin $5,000 on Aug. 10 and a $5,000 check from Walmart’s PAC cleared shortly afterward, on Aug. 27.”

The returns to the retail industry were huge. As the Federal Reserve prepared its rules setting the maximum per-purchase interchange fee, a Home Depot executive told investors on a conference call “Based on the Fed’s draft regulations, we think the benefit to the Home Depot could be $35 million a year.”

That $35 million Home Depot gain is a $35 million loss for banks and credit-card processors. Their interchange revenue was central to the business model that allowed banks to offer free checking and free debit-card use.

That business model is now illegal, and so Bank of America has switched to the model they find second best. If they can’t make the stores cover the costs of debit cards, make the consumers pay a share. The American Bankers Association calls Bank of America’s $5-a-month charge “the Durbin fee.”


Let’s see, you were paying a hidden 3% surcharge for using your debit card, and now you’re paying a flat $5 per month fee. Meanwhile, people using cash are no longer subsidizing debit card users by paying the same hidden surcharge.

And that’s unfair? $5 a month seems pretty reasonable, especially if you spend more than $200 per month using your debit card.

I’m not a big fan of banks, but there ain’t no such thing as a free lunch.

BTW – While Walmart may be the biggest single beneficiary, all those small businesses (like my local liquor store) also benefit.


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44 Responses to TANSTAAFL

  1. votermom says:

    Another reason to stop using debit cards, imo.
    Credit cards typically protect you better in cases of fraud. Just don’t carry a balance.

  2. ralphb says:

    People who pay cash are still subsidizing the first month of no interest on credit cards. The lobbyists would have included that in the Durbin amendment but that would have probably effected overall sales. Lots of people buy with a credit card intending to pay it off the first month, but don’t for whatever reason.

  3. Lola-at-Large says:

    I don’t use banks and I don’t invest in the stock market. Problem solved for me. I’m glad to see this being the impetus for so many to drop big banks, though. Let the free market take a crack at them.

  4. DeniseVB says:

    I wonder if this will affect BoA customers of over 30 years who maintain pretty decent minimum checking balances ? I don’t mind paying a fair share, but not paying off their deadbeat’s debts. (google Obama Bank of America Acorn).

    Big Box stores shouldn’t be whining about their end of the fees, credit and debit cards bring in more business.

  5. elliesmom says:

    I’ve had people make “unauthorized charges” to my debit card twice, and my bank covered it both times. Both charges were in excess of $1000. The second time they successfully went after the merchant (PayPal), but the first time they ate the loss. And I was treated well by my bank both times, but not by PayPal, where I don’t even have an account. I have noticed in the last week or so that small merchants around town who used to swipe my card as a credit card are now asking me if I mind if they put it through as a debit card instead. My bank has not yet started charging me a fee for my debit card, but if they do, $5/month won’t keep me from using it. The question is how many businesses will pass their savings on to their customers? Will gas stations stop charging more for gas if you use a debit card?

    • Dario says:

      We need to demand that ATM cards are free of fees for customers and retailers. There should be a checking account fee if that’s what is needed, but that’s it.

      • elliesmom says:

        It costs money to issue debit cards and process the transactions. I have no problem with a bank charging a reasonable fee for the service. If the charge is to the person using the card, then merchants aren’t passing the fees along to people who are using cash, too. My DIL has a small business. She prefers debit or credit card payments. Less in the cash drawer for a robber to steal, and no taking large amounts of cash to the bank alone at the end of the day.

        • DeniseVB says:

          My DD has a business in the part of Brooklyn where the Crips and Bloods are headquartered…sigh. First thing she set up was her bank card machine, cash goes to…. in the …….oops. I think I posted the NYT article on her several threads back, nevermind 😉

          I still think BoA should just charge us a few cents per transaction rather than a flat fee for one or more times. I use my debit card when I need cash (once a month?) $5 ? How about those who use it daily?

  6. Dario says:

    I disagree. Banks should charge for checking accounts a service fee, and people should be able to write checks or use the ATM without more fees (checks work that way). Walmart may have pushed for the change, but it was necessary. Banks are milking the retailers and the customers. The stores that are hurt the most are small retailers and small businessmen who have small profit margins but pay 3% to the banks. It’s outrageous.

    Blame the banks and their greed.

  7. Dario says:

    The S&P is in new lows territory. Markets are tanking because of the euro problem, but now China has other problems that’s infecting the markets.

    • ralphb says:

      China has been in that situation for some time but it’s only now being partially acknowledged. They have so much unacknowledged risk due to all the state owned enterprises they make us look good.

      • Dario says:

        The latest I read is that banks are holding billions of debt lent to construct the bullet trains, but the building has come to a stop due to safety concerns.

        • ralphb says:

          I have no specific information but I would imagine that’s part of the problem.

        • Dario says:

          Those are China banks holding the debt, but it will have an impact on the Chinese economy which can snowball to lower economic activity in Asia, and then the rest of the world.

        • ralphb says:

          BofA has, or had, a 10% state in China Construction Bank. I think the debt is spread around.

    • ralphb says:

      Greece to Miss Deficit Targets Despite Austerity

      http://www.cnbc.com/id/44747592

      This didn’t help.

  8. votermom says:

    OT, Iowahawk strikes again.

  9. Dario says:

    Other Democrats did not defend Hillary and Bill Clinton from the media racist attack.

    Perry Critics Say He’s No Racist

    Even though Rick Perry is still on the defensive about yesterday’s explosive report on the name of his family’s hunting camp, the Texas Tribune reports that even some of Perry’s fiercest critics “say they do not believe he is racist.”

    “They point to his record of appointments as evidence: He appointed the state’s first African-American state supreme court justice, Wallace Jefferson, and later made him chief justice. (Jefferson’s great grandfather was a slave, ‘sold like a horse,’ Perry once said with disgust.) Perry’s former general counsel and former chief of staff, Brian Newby, is black; so is Albert Hawkins, the former Health and Human Services Commissioner who Perry handpicked to lead the massive agency in 2002.”

    “Indeed, in his 11-year gubernatorial tenure, Perry has appointed more minorities to statewide posts — including university regents and secretaries of state — than any governor in Texas history.”

  10. DeniseVB says:

    Anyone watching ?

    • Dario says:

      Majority Expects Obama to Lose Re-election

      A majority of Americans expect Barack Obama to be a one-term president, an assessment on which, in past elections, the public more often has been right than wrong.
      Just 37 percent in a new ABC News/Washington Post poll say they expect Obama to win re-election in November 2012; 55 percent instead expect the eventual Republican nominee to win. ABC’s George Stephanopoulos is asking the president about that result in an interview today.

      • Dario says:

        It doesn’t matter how many times the Obama supporters use the race card this time; it won’t work.

  11. WMCB says:

  12. yttik says:

    There are people actually protesting BofA right now and getting themselves arrested over it. Good grief, people! Change banks. Use money orders. Deal in cash. Use credit cards. People have a lot of choices, but going to jail because you’re mad your bank has raised it rates? I don’t get that. If you really want to punish BofA, close your account and go to a different bank.

    • Dario says:

      ATM transactions should be the equivalent of an electronic check.

      The problem with changing banks is that it’s a band-aid. Most banks will follow B of A and charge fees. It’s a decision that the Fed should have made a long time ago. Make ATM transactions free of fees. The Fed came out with that regulation about checks back in the early 1900s when banks were charging fees to cash checks. The regulation said that checks were cash. The bank can charge for fees to cash a check only in certain conditions, or withhold giving the cash for a few days, but there are not fees under most circumstances.

      • Three Wickets says:

        ATMs, checking accounts, debit cards would all be offered as free or virtually free services by commercial banks if they were still making gobs of money on credit card balances and consumer loans as they were until the end of the last decade. Credit card and mortgage debt used to be the big profit centers for commercial banks, and that gold mine became securitized to become the main profits centers for the investment banks. That gravy train is over of course.

      • “The problem with changing banks is that it’s a band-aid. Most banks will follow B of A and charge fees.”

        HONK! Unless some people with guts make a fuss about it right now.

    • “There are people actually protesting BofA right now and getting themselves arrested over it.”

      Why don’t you want them to call attention to BofA’s abuse, while there’s still time to stop all the banks doing it?

    • “There are people actually protesting BofA right now and getting themselves arrested over it. ”

      Why don’t you want them calling attention to BofA’s abuse while there’s still time to stop all the banks from copying it?

    • What in hell? My post just got lost in the aether without even a ‘moderation’ note.

  13. 1539days says:

    I read a lot of posts here about what “should” happen. The reality is that what happens, happens. I don’t use my debit card anymore and just got a credit card again. I used my credit union and got a rate below 10%. I’m paying most of it off every month. My complaint is not with the evil businesses taking my hard earned money. I don’t like the government stealing my hard earned money with no recourse.

    I had a gas station that used to take a few cents off for cash purchases. I think the credit card companies told them to knock it off or they would stop authorizing their transactions. Cash discounts tend to discourage credit card use at the pump and the store inside.

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