Earlier this year, NTU fought hard for a bill that would have given Congress time to study the harmful impacts of price controls on debit card transactions contained in the Dodd-Frank financial reform legislation. We feared that pushing ahead with any hastily thought out price controls maylead to a rash of unintended consequences. Among our many concerns were that banks would be forced to offer fewer and less diverse debit card offerings, that consumers may see the elimination of services like free checking, and that small, community banks may find themselves unable to compete.
Despite our efforts, the bill failed in the Senate. And now our fears are being realized. According to reports, banks across the country are being forced to charge customers for their debit card purchasers in an effort to make up for the costs of the new government regulations.
Here's the latest from Forbes,
Starting early next year, Bank of America will charge $5 in each month that customers use a debit card for a transaction. There will not be a charge in the months you don’t use your debit card, and ATM withdrawals are not included.
Word of this new fee came two days before the October 1 implementation of the new interchange fee regulations for debit card purchases. Banks are expected to lose billions of dollars with this reduction in swipe fees. Before the recent legislation, the interchange fee averaged 44 cents per transaction. Now, the reduced fee will be 21 cents plus an additional amount to cover losses from fraud. The interchange fee on credit cards did not change.
Banks are scrambling to make up for this lost revenue in a number of ways, and many major banks have added a monthly fee on debit cards. Bank of America is simply the latest, and largest.
Higher fees and reduced choices were the inevitable ends of government's heavy-handed price manipulation. Banks invested time and resources towards developing a workable debit framework and priced it accordingly. When the government stepped in and arbitrarily ruled that the "interchange fee" that retailers pay banks to process the transaction must be fixed at some point other than where supply meets demand, distortions were inevitable. The government may be able to mandate below-cost pricing, but as the Competitive Enterprise Institute's John Berlau writes, "the Fed Rule will not make costs of a sophisticated debit card processing system, capable of clearing millions of card purchases in nanoseconds, disappear."
The tragic end result is that retailers enjoy a windfall, banks pass on the costs, and consumers are left holding the bill.