Saturday, October 01, 2011

More on the 'Durbin Fee'

Yesterday I wrote about the predictable consequences of trying to limit bank fees as news of the impact of Sen. Dick Durbin's amendment to the Frank-Dodd bill takes effect.

The amendment limited what banks could charge retailers when they accept a debit card. As a result, the banks are starting to charge a monthly fee to customers who have and use those cards. They're also starting to charge for other things to make up the loss of revenue.

Today, the Chicago Tribune editorializes about the Durbin Fee, which is, I believe, a much better name for the new rule.

The charge, which other banks are likely to adopt, is a direct result of his lawmaking. Call it the Durbin Fee.
Bankers told Durbin and his fellow lawmakers last year that the interchange fees subsidize free checking accounts and other services, including the convenient practice of making purchases with debit cards at no charge to the buyer. Slash fees to retailers, the banks said, and they would likely recoup the lost revenue by charging their customers for use of the cards. That's exactly what's happening now.

Durbin claimed that a cut in interchange fees would translate into lower prices and better service at Walmart and 7-Eleven. Funny, but no one's handed us a free Slurpee yet. In fact, the chief financial officer of Home Depot told Wall Street analysts in a conference call earlier this year that she expected Durbin's efforts to result in a $35 million annual "benefit" to the retailer.

Having picked sides in a high-stakes business deal—retailers over banks—Durbin denounced Bank of America for the widely telegraphed result. "Bank of America is trying to find new ways to pad its profits by sticking it to its customers," he said.

Shockingly, banks seek to be profitable. Durbin sought to transfer some profits from banks to retailers. The banks are trying to recoup the lost earnings.

Result of the government intervention: Retailers win, banks lose, and you get to pay the Durbin Fee.

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