A fee for using debit cards for purchases?
Banks used to charge businesses for each credit/debit transaction, and the transaction rate fluctuated. Timothy Carney explains:
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. Wal-Mart 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.
Alas, all good free market things come to an end in the Age of Obama. That’s illegal now. The idea–as all liberal intentions–was to stick it to someone in favor of some poor, poor constituent. In this case, it was to stiff the banks:
After Sen. Dick Durbin, D-Ill., successfully added his “swipe fee” amendment to last year’s Dodd-Frank financial regulation bill, he promised, “By requiring debit card fees to be reasonable … small businesses and their customers will be able to keep more of their own money.” That was the theory, at least.
Ah, the theory. It’s humorous that after years of government intervention the boobs in charge still can’t accurately predict what the market will do in response. I can. Maybe I should be a Senator, eh? Heh. To send your proper thank yous to Senator Durbin and Wal-mart lobbyists, a little more:
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 Wal-Mart 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.
Banks–like Home Depot and Wal-mart–provide a service and employ people. As employers, each entity needs to make money. Why do banks receive the lion’s share of demonization for providing service thereby requiring a profit to, you know, pay employees and fund benefits, rather than Home Depot and Wal-mart? In this case, the retailers win big, and the banks will still get their share of the transaction. We’re the ones who get screwed.
That should be a lesson to liberals, but it won’t sink in–it never does. Business works in favor of the consumer when market forces decide what’s fair, not the government.
UPDATE: Ed Morrissey calls it “deja vu all over again” for those who lived through the 70s.