A recent editorial from Delaware Online points out some rather obvious and disconcerting conflicts in the president’s approach to financial regulation and reform. They point out that Obama has traditionally been – to put it charitably – rather “uncritical” of the quagmire engulfing the financial industry and tried to stay above the fray. Now, however, with his poll numbers tanking and support among his own party wavering, he finds himself in need of a new scarecrow to attack. He finds it in the form of Bank of America and their new five dollar fee on debit card transactions.
President Obama, who to date has been rather uncritical of past financial industry practices, suddenly is playing politics by criticizing Bank of America for imposing a $5 monthly fee on debit-card users. The president suggested this week that the bank’s fee is out of line. He said if the newly created Consumer Finance Protection Bureau were up and running, it would stop Bank of America. That sounds a lot like the micromanaging the president said wouldn’t come with the office.
Bank of America imposed the fee because the “Durbin Amendment” to the Dodd-Frank financial reform law went into effect Sunday. The new regulation caps at about 21 cents the fee banks can charge merchants for processing debit card purchases. Other big banks are expected to add fees to make up for an estimated $6 billion loss in revenue.
There are a number of lessons to be learned from this experience. Chief among them is the end result of the government attempting to punish any sector of private industry by hitting them with punitive taxes and fees. This is most evident in each and every segment of the energy industry, but banks and other financial entities play by the same rules. When Washington makes it more expensive to do business, the banks aren’t just going to absorb the losses in the name of being “good citizens.” They’ll either go out of business, or – as is generally the case – pass those costs along to the consumer.
Every time you place special taxes on a business, it is the taxpayer who foots the bill. Every. Time. And that’s what’s happening with Bank of America.
As the editorial goes on to point out, even when responding to government intervention, the free market still finds a path out of it where possible. Rather than having the president treat Bank of America like the villain in this story, allow the consumers to decide. Customers can either choose to pay the higher fee, or they can take the money to someone down the street charging less for the same service. In the end, since the demand exists for debit card processing, a successful bank will capitalize on that demand and deliver the product at a price point consumers can tolerate while still making a profit.
Is this really all that complicated? No. But it does make for a populist talking point to deflect voter anger away from White House mismanagement and toward perceived “robber barons” who are making “too much money.” This isn’t policy… it’s politics of the ugliest kind.