Friday, October 7, 2011
What debit card fee critics miss on capitalism
October 6, 2011
Ever since Bank of America announced a new $5 monthly fee on debit card use, an outcry has echoed from Main Street all the way to the White House. A Fox Business anchor cut up her BofA debit card on the air in front of a sign that read "Big Bad Bank of America." Sen. Dick Durbin, D-Ill., told BofA customers to "get the heck out of that bank." President Obama slammed the charge as a bad business practice. And Consumers Union called on Congress and regulators to investigate the new fee, which will go into effect in early 2012.
Let's everybody take a deep breath. The uproar is as misguided as Bank of America's action was predictable, and the action masks a hidden benefit for consumers.
BofA and other commercial banks are about to lose revenue from an amendment passed last year that caps the "swipe fees" retailers pay every time a consumer uses a debit card. The amendment, championed by Durbin, made sense because such debit card transactions cost banks virtually nothing. The fees, paid by retailers to card issuers, were a hidden tax on consumers in the range of 1% to 3%.
For the debit cards fee controversy see also here, here, here, here and here.
Posted by Yulie Foka at 8:08 AM