Remember the “Durbin Fee” while using your debit cards

posted at 10:45 am on October 3, 2011 by Ed Morrissey

Government imposes new price controls on an industry.  Industry raises prices elsewhere to make up for the artificial cap on cost recovery.  Government expresses shock, shock at the development.  For those of us old enough to remember the 1970s, this seems like deja vu all over again, as Yogi Berra once said.  For those either too young or too “dim,” as the Washington Examiner puts it, the surprise should be a learning experience, even for a “dim bulb” like Dick Durbin:

During the debate over the Dodd-Frank financial reform bill, when Democrats controlled Congress, Durbin insisted on including an amendment that had nothing to do with Dodd-Frank’s stated aims of stable banks and consumer protections. The Durbin amendment granted regulators the authority to establish price controls on what banks could charge merchants that accepted their customers’ debit cards as payment. The resulting regulations, which took effect Oct. 1, limit what banks can charge merchants to no more than 24 cents per debit card transaction.

Critics pointed out that banks, facing $6 billion annual losses from this change, would shift the costs of debit cards from merchants to bank customers. Sure enough, Bank of America and several of its largest competitors — including Wells Fargo, PNC, HSBC, SunTrust, TDBank, and Chase — will be imposing various new fees on their customers to make up for Durbin’s folly.

Congress set the cap not because it understands the costs and risks involved in issuing debit cards to consumers, but because they thought they knew better than the competitive market what constituted a “fair” price.  Until Congress intervened, retailers paid the costs of the debit cards, which made sense since it made it a lot more convenient for their customers to make purchases.  It also all but eliminated the use of checks at retail stores, which greatly reduced the risk that retailers had to make in parting with services or goods. That made debit cards a good deal for retailers, and the reduced risks kept consumers from paying more at the register.

Now, however, Congress has forced banks to shift a good portion of those costs back to the consumers instead.  Every bank will have to make that adjustment, since none of them are in business to lose money, and their stockholders expect the best return possible on their investment.  But for some reason, Durbin still doesn’t understand how a P&L statement works:

“Bank of America is trying to find new ways to pad their profits by sticking it to its customers,” Durbin said in a petulant statement released this week. This might almost pass the laugh test, if not for the fact that every bank is adjusting to Durbin’s dumb law in nearly the same way. …

Durbin shrugged off such warnings, suggesting that those who disagreed with him were motivated by greed and “on the side of Wall Street banks and credit card companies.” He absurdly claimed that the debit card fee cut would help to prevent banks “up on Wall Street” from causing another financial crisis — a non sequitur so completely disingenuous that it can only be called a lie.

It could also be called gross ignorance, or possibly even both.  Price controls distort markets in exactly this manner.  Retailers may have griped about the fees, but they could have easily refused to accept debit cards and insisted on checks or cash to conduct their business.  Instead of allowing the market to work, government interfered on behalf of one set of stakeholders without having any idea what the obvious and predictable consequences would be.  The only people shocked, shocked at the distortion that resulted are indeed great candidates for the Dim Bulbs of the Year.

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As regards the above excerpt, retailers pay all the costs with providing a product or service because it makes it more convenient for their customers to make purchases. But what you are insinuating is that they absorb that cost, which is not true. If it was, then you might as well say that there is no cost to the retailer for anything sold and it’s all profit, or conversely, you could say the credit/debit card interchange rate could be any rate at all and it wouldn’t affect the price.

Dusty on October 3, 2011 at 11:41 AM

Right. Next you’ll be telling me that my employer’s share of the payroll tax is actually coming from me somehow; as if it were money he could pay me if he didn’t have to pay the government. Pfft!
/

Extrafishy on October 3, 2011 at 12:02 PM

Therefore, if you have thousands in your checking account and
your debit card can be used like a credit card by swiping in the
terminal (without a pin number)and a thief makes thousands of
dollars in purchases, you are not protected by your bank.

Amjean on October 3, 2011 at 12:00 PM

my credit union has a $50 limit on loss.

unseen on October 3, 2011 at 12:03 PM

A smart retailer would offer to give a $5 coupon to customers who use their debit card at the store say 5 times every month.

unseen on October 3, 2011 at 12:04 PM

Hey he might be a dim bulb, unfortunatly since I’m from Illinois he is my dim bulb and welcome to our party. We have given this great country Obama and Durbin. Now can everyone agree that there is a problem with our Education System??

cmptrnerd on October 3, 2011 at 12:05 PM

unseen on October 3, 2011 at 11:48 AM

Use a credit card instead. Pay off the balance each month. It’ll help your credit rating and you may get rewards from it.

lorien1973 on October 3, 2011 at 12:07 PM

[Extrafishy on October 3, 2011 at 12:02 PM]

Not the same thing, precisely, because both your salary and the employer’s SS contribution are both on the cost of doing business side of the ledger and, as such will come to a different stability relationship due to market forces, but you’ve got the gist of it despite your sarcasm.

But the consumer pays the price of the employer’s portion of the payroll tax, so if the government decides to double the employer’s portion, the consumer will see a price rise*.

* Price rise will very slightly depending on the degree to which the market is competitive.

Dusty on October 3, 2011 at 12:12 PM

Use a credit card instead. Pay off the balance each month. It’ll help your credit rating and you may get rewards from it.

lorien1973 on October 3, 2011 at 12:07 PM

Excellent advice. But just one thing. Paying off your balance each month actually hurts your rating.

Remember, its a way of financial institutions to gage whether or not they can make a profit by loaning you money, not solely if you can and do pay what you owe. If you show that you don’t pay interest by paying off your balance, you aren’t a good risk for them.

This is confirmed by the practice of a bank closing a credit card if you haven’t used it in some period of time. So those “only in an emergency” cards usually get cancelled after a year of non-use. Even though they incurred no risk for that period, they didn’t make any money either.

BobMbx on October 3, 2011 at 12:13 PM

And Durbin, along with many a Democrat, IS RESPONSIBLE for the entire “banking industry” meltdown that they claim then required them to bailout the banks…

A vicious circle of loss all around brought about quite intentionally by the Left insisting on the “race based” mortgage mess, demanding banks lend mortgage money to people who were not credit worthy for those loans, on nothing more than they’re “minority race or ethnicity” “status”.

So OF COURSE they “bought houses” they quite literally could not afford. The banks worked around this obvious losing proposition by selling the mortgages soon after (as derivatives), thus making some profit off loans they knew were largely going to be non-returning.

Durbin, Bill Clinton…Democrats all and BARACK OBAMA when a senator in Illinois all forced this process on the banking industry.

Not to dismiss the banking industry here but when told to engage in such practices by the federal government and threatened by such if not, well, seems that the process was doomed to fail but intentionally created to do so. And by the Left.

Lourdes on October 3, 2011 at 12:24 PM

And charging fees to use debit cards is insanity.

Consumers (and merchants) finally have some tool that actually works to nearly everyone’s satisfaction if not comfort and now Dick Durbin and his band of ne’er-do-wells among the Democrats push this damaging, destructive fee process.

Is there ANYthing Dick Durbin and the Democrats touch that does NOT turn to gunk? ANYthing?

Lourdes on October 3, 2011 at 12:27 PM

You gotta wonder if ernesto would be here saying:

If the government cuts taxes in one place, they can’t make it up in other places. They should just sit there and accept that loss in revenue.

;)

lorien1973 on October 3, 2011 at 11:21 AM

Winner

Washington Nearsider on October 3, 2011 at 12:31 PM

[Lourdes on October 3, 2011 at 12:27 PM]

In an abstract sense, I prefer a fee charge regimen wherein the % applies to an amount spent using it rather than monthly fee, though I could live with a simple monthly fee.

A monthly fee would lower prices for products and services and I’ll save money by paying cash. As it was, I always asked a retailer if I will get a discount if I pay cash and was successful 20% of the time.

Dusty on October 3, 2011 at 12:36 PM

Is Roseanne sharpening her axe yet?

Ward Cleaver on October 3, 2011 at 12:36 PM

BobMbx on October 3, 2011 at 12:13 PM

I don’t think paying off your card every month lowers your credit rating. The credit card companies still make money from the 3% or so they charge the retailer.

Count to 10 on October 3, 2011 at 12:45 PM

BobMbx on October 3, 2011 at 12:13 PM

I call Barbra Streisand on that comment.

If I’m knocked down to 800 by paying off my balance every month, just how high would it be if I didnt?

MNHawk on October 3, 2011 at 12:50 PM

What Durbin and Ernie Che fail to understand is that businesses do not pay taxes or fees. They are ALWAYS factored into the cost of doing business and passed on to consumers. So all Durbin has accomplished with his amendment is shifting the collection of the fee from the retailer to the bank. This might actually make for a temporary tiny windfall for retailers as they probably will not lower their prices in the near term.

Price fixing does not and never has worked or provided the intended results.

stvnscott on October 3, 2011 at 12:51 PM

A smart retailer would offer to give a $5 coupon to customers who use their debit card at the store say 5 times every month.

unseen on October 3, 2011 at 12:04 PM

A smart retailer would get people to use THEIR card, at their store.

Target, anyone?

MNHawk on October 3, 2011 at 12:51 PM

Once again my decision to bank with a credit union is paying off. Who would have thunk it? ;o)

DannoJyd on October 3, 2011 at 12:57 PM

Question. After seeing the EBT video and thinking that it is used like a debit card- who is paying the 5$ a month fee/per card/per person?

journeyintothewhirlwind on October 3, 2011 at 1:05 PM

A smart retailer would get people to use THEIR card, at their store.

Target, anyone?

MNHawk on October 3, 2011 at 12:51 PM

True

unseen on October 3, 2011 at 1:07 PM

MNHawk on October 3, 2011 at 12:51 PM

Curtailing my Target use now that I found out Soros has a big chunk of change (to him) invested in it.

journeyintothewhirlwind on October 3, 2011 at 1:07 PM

Unseen -

You are correct – however, there are many restrictions on
the $50.00; like notification to the bank within 48 hours, etc.
When your checking account is drained, you are out “cash” and
your account is subject to either overdraft fees or NSF fees for checks written for mortgage payments, etc. prior to the drain
on your checking account. It may take weeks or months to straighten
the mess out and then, you may only receive a partial refund of
your monies. Why take the chance?

Amjean on October 3, 2011 at 1:34 PM

The cost was always there, hidden in the price of your purchases.

An unintended consequence of the Durbin mess is that the consumer can now see what he/she is paying more for the convienance.
In fact, everyone has been paying for it even if they used cash with all their purchases.
At least now the cost is charged to only the consumers who utilize the payment method.

This will reduce the expenses of businesses and hopefully will bring down consumer prices for everyone.

LeeSeneca on October 3, 2011 at 1:36 PM

Retailers’ lobbyists supported reducing these fees, so the progs are already trying to deflect blame onto the retailers, and of course onto the evilest demonic retailer of all, Wal-Mart. Watch for it.

I’m going to go with ‘the Durbin fee’.

slickwillie2001 on October 3, 2011 at 1:55 PM

All fees, visible or hidden, are paid by the consumer even those who always pay cash. On certain items there is a hidden federal excise tax which the consumer pays just as directly as the sales tax that he sees both are paid by the consumer not the producer. The important thing to note is that corporations do not really pay taxes or fees as they merely pass these costs along. However, the politicians love to pretend that by socking it to the producers they are saving the poor downtrodden consumer. This farce seems to convince a large number of voters and we know whom they vote for.

Annar on October 3, 2011 at 2:26 PM

Never used a debit card,never intend to. If I need money from a bank I use my traditional ATM card. If I need to pay for something at a store, I pull out my rewards CC (that gets paid in full monthly), or I pay in cash.
Frankly, I never saw anything useful about a debit card and always knew they would find a way to screw people who use them.

paulsur on October 3, 2011 at 2:38 PM

Several local self-serve (is there any other kind these days??) gas stations charge 45 cents to use a debit card. The choice is up to the customer – 45 cents for convenience or remember to stop at an ATM first. CHOICE!!!

ALWAYS let the free market tell you what it wants.

fred5678 on October 3, 2011 at 2:38 PM

Never used a debit card,never intend to. If I need money from a bank I use my traditional ATM card. If I need to pay for something at a store, I pull out my rewards CC (that gets paid in full monthly), or I pay in cash.

Frankly, I never saw anything useful about a debit card and always knew they would find a way to screw people who use them.
paulsur on October 3, 2011 at 2:38 PM

Even credit cards have their hidden costs.

john1schn on October 3, 2011 at 2:55 PM

I don’t think paying off your card every month lowers your credit rating. The credit card companies still make money from the 3% or so they charge the retailer.

Count to 10 on October 3, 2011 at 12:45 PM

You’re right about this.

When I first decided to get credit cards, I laid down 2 rules of thumb for myself: 1) I’d only make purchases I knew I’d be able to payoff before I’d get charged any fees; 2) I’d take every no-annual-fee card offer I’d receive. Following those rules, I ended up with 11 credit cards and my credit rating went to over 800 within 2 years.

btw, I know it’s easy to have a WellsFargo checking account w/o being required to pay any associated monthly fees. You have to open a savings account if you don’t already have one, and set up some recurring monthly transfers of no more than $25 between the accounts.

There are plenty of other banks out there which still offer free checking accounts, too.

Bizarro No. 1 on October 3, 2011 at 3:02 PM

Ummm! Use credit unions instead of the big banks.

stacman on October 3, 2011 at 3:11 PM

Several local self-serve (is there any other kind these days??) gas stations charge 45 cents to use a debit card. The choice is up to the customer – 45 cents for convenience or remember to stop at an ATM first. CHOICE!!!

ALWAYS let the free market tell you what it wants.

fred5678 on October 3, 2011 at 2:38 PM

A smart person would refuse to buy gas at the station charging a convnience fee. If they don’t accept credit cards (I get double points with AMEX) they don’t get my business…

stacman on October 3, 2011 at 3:14 PM

So what’s needed now is a class action lawsuit against Durbin to recover damages.

Any attorneys in the house?

Midas on October 3, 2011 at 3:18 PM

This will reduce the expenses of businesses and hopefully will bring down consumer prices for everyone.

LeeSeneca on October 3, 2011 at 1:36 PM

Tell ya what – you let us know the minute retailers reduce their prices to offset the absence of this fee, m’kay?

Midas on October 3, 2011 at 3:21 PM

But just one thing. Paying off your balance each month actually hurts your rating.

BobMbx on October 3, 2011 at 12:13 PM

Congrats! You drank the Kool-Aid and now spew the stupidity. Credit is good for one entity and one entity ONLY. A Bank.

You don’t NEED a high credit rating. You don’t NEED a $30,000 credit line. If you think you do, you are a sap.

BierManVA on October 3, 2011 at 4:26 PM

I suspect that when I am informed of this new charge, and that when I in turn, inform my bank that I am withdrawing all but $5 from my savings account, they will likely reconsider. If not, I will then cancel direct deposit, start writing checks for everything, and start to move my major banking activity elsewhere.

I do not condone, by any means, this government intervention. But in my opinion, a bank can charge me $1000 for each use of my debit card. It is up to me whether I will pay them or not.

Gunslinger on October 3, 2011 at 4:39 PM

Excellent advice. But just one thing. Paying off your balance each month actually hurts your rating.

BobMbx on October 3, 2011 at 12:13 PM

It’s never hurt mine and I’ve been doing it for more than 20 years.

Oldnuke on October 3, 2011 at 4:58 PM

Congrats! You drank the Kool-Aid and now spew the stupidity. Credit is good for one entity and one entity ONLY. A Bank.

BierManVA on October 3, 2011 at 4:26 PM

Not so sure about that. Not too long ago(couple of years) I was checking into some insurance for a property I was thinking of buying. Guess what, the insurance company ran a credit check on me while I was sitting in their office. Being curious I asked why an insurance company would want to run a credit check. They told me that it’s SOP now. The reason is that people with good credit ratings usually maintain their property better which results in fewer claims. Seems that people with poor credit don’t take care of their property and will file a claim on almost anything. Don’t know if they still do it, I haven’t asked about it since the one time.

Oldnuke on October 3, 2011 at 5:07 PM

Senator Dick Durbin (D – Illinois) is up for re-election in 2014.

http://www.senate.gov/general/contact_information/senators_cfm.cfm?State=IL

Voters of Illinois, please make sure there is a strong Republican candidate ready to run against the founder of the “Durbin Fee.”

Any potential candidates for this Senate seat should get heavily involved in the 2012 election cycle, since that will be the best prep for their 2014 campaign.

wren on October 3, 2011 at 5:08 PM

I call Barbra Streisand on that comment.

MNHawk

Good call, as what he said is complete BS.

xblade on October 3, 2011 at 5:51 PM

Economic illiteracy is the foundation of Modern Liberalism.

visions on October 3, 2011 at 7:03 PM

Cash is still King.
Let it come back.

Badger40 on October 3, 2011 at 8:28 PM

Anyone else feel like buying a whole bunch of Bank of America stock just to tell Durbin and Bambi to stick it? Who’s with me? Ernesto? Come on, I’ll loan you a few bucks until your mom gives you your allowance.

eyedoc on October 3, 2011 at 8:28 PM

People like ernesto forget that the banking industry is regulated by the feds. So they are not free to do what the market would call for.
From my little knowledge, banks cannot diversify their portfolios.
Is that not right?
So the little banks have to struggle & the big banks not really.
And the bonus is they are being helped along at every turn by the Fed Rerv.
What a sweet deal!

Badger40 on October 3, 2011 at 8:33 PM

Right. Next you’ll be telling me that my employer’s share of the payroll tax is actually coming from me somehow; as if it were money he could pay me if he didn’t have to pay the government. Pfft!

Of course. That is exactly what happens. Th govt steals your contribution from YOU and your company’s contribution from YOU.

proconstitution on October 3, 2011 at 8:48 PM

By the way, if the charges drop significantly for us, we will drop our prices. It will make our product more attractive to consumers.

Voter from WA State on October 3, 2011 at 3:39 PM

Well, let’s see; in the last few years there were a few government regulations that resulted in decreases in your costs, weren’t there? Wasn’t there a payroll tax reduction, etc? Did you decrease your prices?

Midas on October 3, 2011 at 9:09 PM

Congrats! You drank the Kool-Aid and now spew the stupidity. Credit is good for one entity and one entity ONLY. A Bank.

BierManVA on October 3, 2011 at 4:26 PM

Let me add to the insurance company example another one – prospective employers; especially if you’re applying for a position that is in charge of assets of any consequence. Wanting to be an accounting manager but have bad credit and up to your eyeballs in debt? *bzzzzt* Thanks for playing, but odds are that people in that condition are more likely to commit embezzlement, etc.

So… put down *your* glass of Kool-Aid, stupid, and get a clue.

Midas on October 3, 2011 at 9:13 PM

ernesto on October 3, 2011 at 10:52 AM

Seriously, spare us your idiocy.

Midas on October 3, 2011 at 9:16 PM

Two words: credit union.

Dandapani on October 3, 2011 at 9:17 PM

President Ogabe has joined the pile on of BoA:
http://dailycaller.com/2011/10/03/obama-speaks-shareholders-weep/

Yes, he is trying his darnedest to make profit a dirty word and to demonize banks. I swear that his object is to impose sharia banking that garners no interest nor charges interest. At any rate, O has no respect for capitalism or for private property.

onlineanalyst on October 3, 2011 at 9:27 PM

There will be no savings realized by the retailers due to this.

The effective rate for handling debit cards at the POP will be 275 basis points. This is the same effective rate for CC transactions and EBT transactions.

This will not change. The only thing that will change for the retailer is who is getting those BP’s according to a statement.

The bundling of merchant processing fees into an easy to understand cost per swipe and % of purchase is not GONE. It will be replaced by a cost per swipe, cost per access to the secure network, cost per process by the intermediary, cost per process and % of sale to the bank giving the short term loan and the cost per process and % of sale to the final bank.

If you are a retailer, you will see ZERO reduction in cost, you will see a much more obtrusive reporting structure and more complicated invoicing for your merchant services.

Banks can now charge a per card, per month fee for access to the secure networks (STAR, Pulse, etc.). They will do so. Banks can now also charge for journal entries for individuals, previously they could only do this for business accounts, expect to see some banks start charging a few pennies per transaction.

There will be no overall savings, a single digit basis point reduction in front end costs will be offset by an increase in backend costs. If by some miracle, some retailer were to see a few BP of savings under the new rules, it would be offset by the cost of changing their prices. YES, changing your prices costs you money, no matter if the prices go up or go down.

On the bright side, banks and the government get to collude to make things more expensive for everyone at every stage of the transaction.

Jason Coleman on October 3, 2011 at 9:29 PM

Excellent advice. But just one thing. Paying off your balance each month actually hurts your rating.

BobMbx on October 3, 2011 at 12:13 PM

If by “rating”, you mean credit score, then your statement is inaccurate. Paying off your credit balance every month helps your credit score because one large part of the score is the difference between your credit limit & what you owe. The larger the spread (lower balance), the higher your score.

mdenis39 on October 3, 2011 at 11:13 PM

Dim Bulb of the Year?

yeah, and not even an incandescent bulb at that. At least then he’d be able to give off a little heat in the absence of light. But no, we’ll get no such comfort from Dick Durbin. It’s bad enough that he’s a Senator, but it could be worse – he could be one of YOUR Senators (like he is one of mine). Hey, I’ve been voting against ol’ Dustbin for years, but it does no good in a state dominated by Chicago.

dissent555 on October 3, 2011 at 11:30 PM

How about instead of waiting ’til 2014 to deal with this mess we do so now……pass a bill to repeal this amendment provided BoA (and their competitors) promise to cancel this fee.

I’m already barely getting by, now I’m going to probably switch banks if this crap keeps up. Free checking accounts are no longer free!

SgtSVJones on October 4, 2011 at 12:23 AM

Worse yet, it sends a message to the public that the banks are insolvent if they’re not aware of this per transaction fee limitation and what it means. Hello mattress my old friend – and storage place.

{^_^}

herself on October 4, 2011 at 4:41 AM

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