Tuesday, October 4, 2011

Shifting Debit Card Costs

In light of Bank of America's recent announcement that they will be charging a $5 monthly fee for debit cards, the St. Pete Times published an incoherent rant that tried to link the unpopular program on another - TARP:

With financially stretched consumers already getting their pockets picked at every turn, from airline travel fees to cable television bills, Bank of America's decision to impose a $5 monthly debit card fee is a cynical slap in the face to the public whose tax-funded $45 billion in TARP funds helped bail out the nation's biggest bank from the consequences of its own incompetence. The new fees by B of A and its competitors hit the poor and middle class disproportionately hard, and Congress should look for ways to provide more relief for consumers.
In response, I wrote the following letter to the editor, published today:

Your editorial criticizing Bank of America's new debit card fees was off base in linking them to the Troubled Asset Relief Program.

TARP had nothing to do with these new fees; they were spawned by another ill-conceived government initiative, the Dodd-Frank financial reform bill.

Allowing customers the use of debit cards creates costs on issuing banks, and previously the banks imposed these costs on merchants. So, the most powerful and politically connected corporations in this sector lobbied the government to make someone else pay their bills. Kind of like TARP, actually.

The result was Dodd-Frank, which capped how much banks could charge merchants for debit card transactions. To make up for the shortfall, banks now have to find other sources of revenue to fund debit card transactions.

The fees did not spring up out of nowhere — they represent costs that existed all along, but now shifted to individuals because of an unjustified government intervention. To suggest more congressional "relief" is unfortunate and illogical.

I previously wrote about debit card fees here.

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