Thank Walmart for Your New Bank Card Fee

The Washington Examiner ^ | 2 October 2011 | Timothy P. Carney

[huldah1776]

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."

Durbin, needless to say, doesn't like being blamed for this highly unpopular new fee. He blasted B of A for instituting the fee, calling it "unfair." Other liberals say B of A is just making excuses for fleecing their customers. But Bank of America was always free to charge a monthly fee to debit card customers. It didn't because it thought it could get more customers by charging the stores instead.

Debit-card users don't have the lobbying clout of Walmart and the retail industry. Bank of America customers can't get together and hire Durbin's old staffers.

It's the standard tale of government intervention in the economy: The guy with the best lobbyists wins, and the little guy -- this time, the consumer -- loses.

Timothy P.Carney, The Examiner's senior political columnist, can be contacted at tcarney@washingtonexaminer.com. His column appears Monday and Thursday, and his stories and blog posts appear on ExaminerPolitics.com.

[Dilbert San Diego]

But, some stores no longer accept checks. Due to problems with bounced checks, and the ease of use of credit/debit cards, some retailers simply don’t take checks anymore.

[Dilbert San Diego]

So it’s $5 per month, not $5 per transaction. So it’s a $60 annual fee to use that debit card now.

Well, here I think we might see banks competing for business. Some banks may charge less than $5 per month, or might waive the fee if you keep a minimum balance, or give other incentives to keep the cost to the customer down. We’ll have to see if every bank charges $5 or if some charge less, or some waive it.

[rottndog]

Well, here I think we might see banks competing for business.

EXACTLY! The market works, and is consumer driven. The power of the purse strings controls all of this.

[Will88]

Before debit cards, most people probably paid cash for many routine transactions. Before debit cards were so common I’d typically withdraw $200 for walking around money, but that’s now more like $40 since I use a debit card routinely.

It’d be easy to return to carrying more cash to pay for routine transactions if debit fees seem out-of-line.

[throwback]

Very true. And most retailers paid and still do pay for check verification services to try to prevent fraud. That's one advantage to them of using debit cards. Debit cards provide immediate verification of the customers ability to pay and in many cases provide immediate movement of funds to the merchant. They know they will get the money, and they get it fast. It's a service to the merchant just as it is to the consumer. I don't really get all the whining about banks. I've never been whacked for a fee or a late charge. If you shop for services and do due diligence paying on time, you avoid most if not all of it. If you're sloppy managing your money, you have problems. I'm sure banks exploit it, but whose fault is it really? It's like the mortgage mess; whose fault is it that people borrowed %100 of the price with an ARM?

[glorgau]

Why not just have any fees appear directly on the receipt and get charged directly to the customer?

Sunlight is the best disinfectant. The market will find the solution from there.

[Godzilla]

Banks are nickle and diming us to death
- Requiring minimimum balances (which they use for their purposes without our reinbursment) or we get a fee (again for them)

- Paying us essentially next to nothing interest rates on our savings (which they use to bolster their ‘investments’)

- More fees for non-bank ATMs

- And more fees on top of those.

[dead]

So Dick Durbin takes a bribe from WalMart to change legislation that costs BoA money, then BoA passes that loss on to the consumer.

And I'm supposed to blame WalMart?

No, I'll stick to blaming the government. WalMart is supposed to look out for WalMart. Dick Durbin is supposed to be our employee, working for us.

[IceAge]

Exactly! You boiled it down to plain terms.

Seems to me there has been a lost of talk lately about some ex employee lobbying Perry about that vaccine. Lots of headlines about that one.
Interested to see how many headlines we see about Durbin caving into his ex’s lobbying efforts and THEN accepting campaign donations from the very people who were lobbying him.....
This guy is dirty and deserves to be run out of office!

[Texas Eagle]

I still blame Congress. They didn't have to cave in to Big Retail's demands.

Besides, Government raises fees on stuff all the time and that just falls on deaf ears.

[CdMGuy]

The fees charged by banks to retainers for processing debit card purchases were outrageously high, especially considering that it cost next to nothing to process such transactions compared to the customer writing a check. So, the government intervened, even though it was none of the government’s business.

The net result was that the government limited the amount of the transaction fee. So, the banks such as BAC decided to get their pound of flesh elsewhere by instituting a $5 a month charge against checking account customers who used their debit card for one or more purchases each month.

The banks were greedy to begin with, and now that they made a bunch of money off their original greed, they do not want to give up that money and hence, the new debit card fee. As for me, a pox on the major banks and a pox on the Federal government.

Folks need either to not use their debit cards for purchases or switch their checking accounts to regional banks or credit unions which do not charge such fees. That is my plan should Wells Fargo begin charging such fees in my So Cal area, and I have been a 33 year WF customer.

[JAKraig]

The sad part of all of this is that the debit cards save money over cash and checks. With a debit card there is no labor, the card is swiped and a computer does all the rest. The computer collects the money from the bank account and the bank doesn't have to count anything the money is transferred and the accounting is done basically for free by a machine.

Once people return to using cash, and they will, checkouts will be slower and there will be substantial labor involved in changing drawers for cashiers and more armored car services will be needed. There will be more losses from counterfeiters and a lot of time lost in making change.

The government caused this mess but the banks will not be able to get away with charging for the service. Customers are used to using it for free and will find a way to get out of the $5 pretty quickly. I will never keep money in a bank account that charges me to do so, before that happens I will simply stop using a bank.

There are plenty of banks that will be glad to let me use their services just for the benefit of keeping my money there so that they can use it while I am not. The on-line banks even pay a substantial interest to me, yes, they pay me to keep my checking account with them.

Personally I don't use a debit card. My Discover card pays me as much as 5% back on some of my purchases. All I have to do is pay off the balance each month. Using a credit card to pay for everything has other advantages. If a provider does something wrong I can easily stop their payment until they resolve the problem. I have a monthly accounting of everything I purchase.

If the credit card services stop giving me an incentive to use them I will simply use checks or if the bank wants to charge me to keep my money with them I will pay cash or money orders. I will find a way to not pay $60 a year for something they make money on anyway.

[Sherman Logan]

Exactly. It’s amazing how many people don’t realize they’ve always been paying for the debit card, just through the retailer. It’s a cost of business he passes on to the customer.

Though some gas stations around here give a discount for cash, which is equivalent to charging a fee for using a card.

[yefragetuwrabrumuy]

I think a way around these boondoggles, that individual States can use to insulate themselves from irresponsible Washington and the volatile dollar, is to create a public-private partnership with a currency company to issue “debit scrip”.

If a State issues a currency, it must be back by gold and silver. But anyone can issue ‘scrip’, which is a non-legal tender alternative to currency. A State could heavily license, regulate, audit and insure a currency company to issue a heavily controlled currency with voluntary consumer and merchant buy-in.

Any citizen of that State could buy the equivalent of a renewable debit card with US dollars. And if there was massive inflation, it would be a great deal, as US dollars could inflate, but the scrip currency would not, because its prices are fixed and only change once a month.

Unlike a regular debit card, a scrip debit card would have both much better security and be easier to use, needing no special equipment, just a cell phone with a camera. This is because the front of the card has their picture, and the back of the card has an encrypted Data Matrix bar code, which is a public domain bar code that can be read by a cell phone camera.

So if either a merchant or a consumer had a cell phone, a sale could be made through the currency companies phone line and computers, transferring scrip currency from buyer to seller.

The big selling point of scrip is that it is a better deal for both consumer and especially local retailers than by dealing in dollars, much like using coupons. And yet it can be used side-by-side with dollars, whichever one offers the better deal being preferred.

When dollars become too scarce in deflation, as happened at the start of the Great Depression, scrip comes to the rescue, keeping both the market flowing and local government functioning. It was used hundreds of times, and is still used in some places in the US.

So what’s not to like? No matter how chaotic the federal government, how volatile the dollar, shortages and surpluses, scrip fits the bill, and debit scrip has a remarkably low overhead.

[hawgwalker]

Big by no means, as a retailer the interchange rates became very important to me when gasoline passed the 3 buck mark. 50% or more of my gross margin on a credit card transaction goes toward these fees. At the current 3.59 per gal closer to 75%.

[csmusaret]

Debit cards provide immediate verification of the customers ability to pay and in many cases provide immediate movement of funds to the merchant. They know they will get the money, and they get it fast.

That is exactly what happens when you pay with a paper check at Walmart. If you don’t have enough money in that account the check will not be approved. If the check is approved, that money comes out of your account immediately.

[libertarian27]

I have a stupid question:

My Bank ATM card is also a debit card (I never debit) So, am I going to get whacked with a debit fee because I have the card and only use it as an ATM card?
(that’s to say if my bank jumps onto this bandwagon too)

[RC51]

Take a look at the costs the Banks actually incur to support their debt card transactions. It is fractions of a fraction of a penny per transaction. Banks are raking it in for next to nothing.

[Turbopilot]

Well, my bank’s not going to do that. But personally I think you gotta be nuts to use a debit card anywhere than at an ATM anyway. Just use your bank’s card for ATM withdrawals and use a real card for everything else, and the fees go away.

[firebrand]

TD Bank has now eliminated its ATM-fee reimbursement for “senior” accounts—which means those least able to do so will now have to walk through blizzards or extreme heat to get to the bank, or else carry lots of cash and become the prey of muggers.