Over the past few months, customers have been in an uproar over the institution of additional fees at big banks such as Bank of America, Wells Fargo and JP Morgan Chase, especially Bank of America’s planned $5 monthly charge for using a debit card.
In response to these new fees, many have expressed a desire to switch banks, but find that the actual process of doing so is too complicated or cumbersome. Seven percent of customers are estimated to be moving their primary account to a different institution in 2011, according to studies by Javelin Strategy and Research.
Congress has apparently acknowledged this customer dissatisfaction, as North Carolina Representative Brad Miller has proposed a bill that would supposedly make it easier for customers to switch banks and avoid the new fees. He has called the difficulty of switching accounts both “deliberate and unnecessary.”
The problem with this is that Congress caused the banks to institute these new fees in the first place: banks used to generate revenue from charging businesses a certain amount per debit transaction, until the legislature enacted a law that capped these charges by a significant amount. To make up for this loss in revenue, banks are now turning to their customers and putting the debit charge on their dime. Congress is now trying to compensate for this customer fallout by piling even more regulation on banking.
Instead of meddling further in economic policy, Congress should remedy their original mistake and move on. An inherent problem exists with politicians attempting to regulate the banks because, simply put, politicians are not economists. They pass laws whose repercussions they do not fully understand just to please their constituencies. The more Congress stays separated from regulating banks, the better.
The Occupy Wall Street protesters have converged upon the plans for a debit card fee, calling it an example of corporate greed, but the root of the problem lies on Capitol Hill, not Wall Street. Congress needs to pull themselves together and analyze all angles of an economic problem before it creates new laws that have far-reaching repercussions.
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Before we start railing against BofA’s $5 fee or any other of the new fees that big banks have been introducing lately, we should consider what got us at this situation in the first place. All of these reviled fees are in response to the fall in revenues from debit card transactions that are the consequence of the passing of the Durbin Amendment and the Federal Reserve ruling to cap debit interchange at $0.22 + 0.05% of the transaction amount.
Everyone who was paying attention to what was happening knew that this was coming and warned against it. Here is what we wrote: http://blog.unibulmerchantservices.com/banks-may-limit-debit-card-transaction-size-to-fight-fee-limit
The point is that, if the government decides that a large portion of a business’ revenues would be collected by someone else, the business will look for ways to make up for its losses and they would do it any way they can. Banks are certainly no different.