Earlier this week, many low-income customers at Bank of America were informed that they may no longer qualify for a free checking account. These consumers were notified that starting this month, all eBanking accounts will be moved to a standard core checking account, which will charge a $12 monthly fee unless they have a daily minimum balance of $1,500 or receive a direct deposit of $250 per month.
While many are expressing frustration with their bank, their anger should be directed towards Senator Dick Durbin (D-IL) for his amendment to the Dodd-Frank Act of 2010, which imposed price controls on debit card fees and blocked access to financial services and advice for the underserved. Specifically, this amendment has led many banks to abandon free checking, impose higher banking fees, and eliminate rewards programs. In total, around one million people, who are mostly low-income, have withdrawn from the banking system because of it.
Historically, price controls have never worked and caused more harm than good. This has been true of the Durbin Amendment.
Large retailers successfully lobbied the government to impose these price controls because it caps the price which banks can charge merchants when a customer uses a bank’s debit card to purchase goods. Despite retailers promising to pass their savings onto consumers, multiple studies have found that big-box retailers simply kept the reduced costs as a windfall.
In response, banks were forced to cut costs and raise fees elsewhere to offset the drop in revenue. Furthermore, the announcement by Bank of America is not a surprise, but a continuation of what has been happening across the industry since the Durbin Amendment was instituted. Unfortunately, many low-income savers will be hit hardest.
That is why NTU continues to urge Congress to protect low-income Americans by repealing the Durbin Amendment. Repealing this poorly thought-out policy will end the handout to big-box retailers and relieve consumers and businesses of government interference. A reduction in government regulations will increase market competition and benefit the financial system.