Dick Durbin

Putting Customers Second

Banking fees are becoming more expensive and less transparent thanks to Wal-Mart and Sen. Dick Durbin.

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This past weekend the momentum for Bank Transfer Day was dampened by the news that Bank of America would be dropping its now famous $5 monthly fee for the use of debit cards. The public uproar that led the bank and its competitors, including JPMorgan Chase and Wells Fargo, to shelve proposed monthly fees has only served to encourage less transparency. Banks will now go deep into the shadows with creative ways to recover the lost revenue they've suffered from a recent federal cap on fees charged to debit card transactions. As the banks conjure up ways to make up for their federally imposed losses, the retail industry is sitting silently on the sidelines enjoying an estimated $7 billion in increased revenue from the transaction fee limitations.

For instance, Wal-Mart, as the largest retailer in the U.S., naturally welcomes the new legislation, and the estimated $485.2 million it stands to gain annually.

The new regulation was ordered by the so-called Durbin Amendment, a law within the Dodd-Frank Act passed in 2010 with the intent of preventing another financial crisis. Instead of providing a price break to consumers at the check-out as the law intends, the amendment has forced banks to cancel rewards programs and raise various fees. Because the billions banks were getting in revenue were hardly "extra" income but rather used to fund debit card issuance, customer service operations, and security systems for checking accounts, the consumer is now getting hit hard.

Instituting monthly fees on customers making purchases with debit cards—which would be a straightforward way to fund the provision of debit card services—has resulted in public outcry and a substantial outflow of customer deposit accounts forcing financial institutions to change tack and find other sources of revenue. Some Citigroup and Wells Fargo customers have discovered their checking accounts "upgraded" in recent weeks to higher minimum balance requirements—one reported jump was from $1,500 to $6,000 for some checking accounts at Citibank—and fees for failing to meet the new standards. Other banks are planning to charge new checking account fees for customers who do not exclusively bank online and use online bill pay. 

TD Bank has already raised fees on a host of services like wire transfers and money orders, and it has also created a $9 fee charging customers for making more than six withdrawals in a billing period (other banks have had a similar fee for a while, but TD Bank had held off matching them until now). Some banks are exploring eliminating all overdraft and non-sufficient fund fee reimbursements. Banks may also place a $50 or $100 cap on the amount customers can charge per debit transaction. 

Whether or not these fees are fair business decisions, they are not necessarily the actions of greedy bankers squeezing what they can from their customers. Even USAA, a part co-operative serving primarily America's U.S. military personnel, veterans, and U.S. military family members, is cancelling programs as a direct result of the Durbin Amendment costing its banking customers an estimated $84 per year.

The Durbin Amendment will cost customers banking with Bank of America, JPMorgan Chase, and Wells Fargo close to $200 per year depending on the mix of fees they choose to adopt.

Meanwhile, prices are not falling at the check-out as the retail industry would like consumers to believe. The estimated $7 billion in increased revenue for the retail industry will mostly fall in their own pockets.

These unintended consequences of higher fees and costs to the consumer via the Durbin Amendment had been forecasted and forewarned by a wide array of economists, industry experts, and concerned Americans long before the law was implemented. Still, it got pushed through, and now we're all paying for it.

The Durbin Amendment wasn't even part of the original Dodd-Frank bill. It was quickly written as an addendum to the Dodd-Frank Act by Sen. Dick Durbin and passed into law along with hundreds of other new rules that have not ended too big to fail and still leave taxpayers on the hook for financial industry losses. Big box retailers like Wal-Mart lobbied hard to get this amendment added in the final hour—even though it has nothing to do with the financial crisis nor is it providing any measurable benefit to consumers. Passing a law as part of a bigger piece of legislation, in this case Dodd-Frank, is much easier than passing it on its own. The Durbin Amendment by itself would have been dead-on-arrival, but proponents of the Dodd-Frank Act needed Sen. Durbin's vote on the larger legislation, and so allowed his addition.

On the surface, it may appear confusing as to why legislators would sponsor, push, and ultimately enact legislation that places such a big burden on so many individuals despite early, legitimate, and plentiful warnings. But legislators know they can just divert the blame by villainizing an already demonized banking sector seeking to cover its costs. "Bank of America is trying to find new ways to pad their profits by sticking it to its customers. It's overt, unfair and I hope their customers have the final say," Sen. Durbin said following the announcement of Bank of America's $5 debit card fee, which has subsequently been canceled.

Customers may very well leave Bank of America and other banks as a result of new fees, but it is shameful and un-American that it has to be because of legislators who redistribute and transfer money from the pockets of the many to the coffers of the few.

Anthony Randazzo is director of economic research for Reason Foundation. James Groth is a research associate for Reason Foundation. A version of this article was originally published by Minyanville.com on November 9, 2011.

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  1. “But as Anthony Randazzo and James Groth explain, the public uproar that led the bank and its competitors, including JPMorgan Chase and Wells Fargo, to shelve proposed monthly fees will only serve to encourage less transparency.”

    If only someone could have seen something like that forthcoming.

    Have people always been such idiots?

    1. Remember, the bankster is always right.

      1. +1 for me.

        1. Episiarch wins the clusterfuck.
          Obviously.

          1. And another point for Epi! You’re cleaning up, dude!

    2. So many things I didn’t know about economics that I’m learning from Reason…Like since banks were forced to cut back on fees in an area where they had monopoly pricing power, they will, of course, have to increase fees in areas where they don’t have as much pricing power; banks weren’t previously charging fees in these other areas because they were feeling charitable and were making enough profit on interchange fees. Since their costs are fixed and their profits are fixed, banks will need to adjust fees. What is this, economics for slow learners?

      1. +5 everyone

  2. poor, poor banks

    1. …embraces Gambol Lockdown.

      1. +2 for Shirley

      2. Glad to see no education money was wasted on this one…

        no hugs for thugs,
        Shirley Knott

        1. …not too smart.

          1. Shirley at 3 now!

  3. If you can’t fool all of the people all of the time, well, increase funding for public education…

    no hugs for thugs,
    Shirley Knott

  4. it is shameful and un-American that it has to be because of legislators who redistribute and transfer money from the pockets of the many to the coffers of the few.

    OTOH, it is praiseworthy and American that legislators redistribute and transfer money from the pockets of the few to the coffers of the many.

    1. …via artificial borders enforced by big government.

      And so is communism.

      Officer, am I free to gambol?

      MARX: NO!
      MISES: NO!

      The Marx-Mises Axis of Evil gambol lockdown.

      1. Officer, am I free to gambol?

        Libertarian: NO!
        Leninist: NO!

        The Libertarian-Leninist Axis of Evil gambol lockdown.

        1. +2 for Buck

      2. *baaaaaaaaaaaarf*

          1. And barfman gets on the board with a point!

            1. HOW EMPTY AND MEANINGLESS IS YOUR FUCKING LIFE THAT YOU’RE HERE EVERY DAY POSTING AROUND THE CLOCK?

              JESUS, IF YOU’RE GOING TO BE AN ADDICT, AT LEAST PICK SOMETHING WORTH GETTING ADDICTED TO.

              1. +2 Epi!

              2. Episiarch says: It’s a good thing.

                1. “Addicted to White Indian”

                  Which is funny because you just asked him recently to ignore you rectal, so which is it?

                  1. …sore losers to the ultimate online competitor, White Indian.

                    1. “Addicted to White Indian”

                      Which is funny because you just asked him recently to ignore you rectal, so which is it?

                    2. “the ultimate online competitor, White Indian.”

                      Who is apparently too fucking stupid to realize many banks are co-ops.

                    3. Cooperative banking in the United States…

                      NOTHING, except:

                      This section requires expansion.

                      https://secure.wikimedia.org/wikipedia/en/wiki/Cooperative_banking#United_States

                      LOLOLOLOLOLOLOLOLOL

                    4. I have to get, like, at least 1000 points for having the stupid troll who literally camps out at this site all day and then posts 2000 posts on the weekends actually accuse me of living here. Fuck it, I get 2000 points for that, so suck it, Banjos and Warty.

                    5. Your self-awardation of points is excessive. +1000 points to me. DO YOU EVEN KNOW HOW OBSESSED YOU ARE

              3. or not paid by Daily $oros or Mother $oros it is the psychic thrill of barbed-wire comments that makes the day…

                Wire Cutters 4 Sale cheep!

      3. -5 internets

      4. -5 internets.

        1. +2 for Bucky.

  5. This serves as proof that that dickhead Dick Durbin is clinically retarded. Stick dynamite up your ass, remove yourself from screwing up the voluntary transactions of consumers and businesses, you fucking worthless failure.

    1. Gambol Lockdown and land redistribution to the capitalists serves as proof that that dickhead Libertarians is clinically retarded. Stick dynamite up your ass, remove yourself from screwing up the voluntary Non-State Society, you fucking worthless failures.

      1. +1 for Angus.

      2. NOTICE TO Customer 34124
        Alias: WHITE INDIAN

        We have noticed an unsual amount of activity from your internets account. We would like to remind you that you are only allocated so many internets per day. Currently you have exceeded your daily allowance and are now drawing down on your internets reserve.

        Current internets remaining: 235

        Thank you for your business and we would like to add thay we care.

        1. And might we add that you may use any surplus internets you have at the Indian internets casino. Enoy great internet fair, live shows, roullette, black jack, and if that doesn’t interest you. Then how about our 1,000,000 Acre internets planation where you are free to Gambol all DAY! Everyone is a winner at Indian internets casino! So come on down, its right off of route 66 15 minutes south of msnbc.com!

          Indian internets casino is a wholly owned subsidiary of Internets Bank

          1. Does the white man have you down? Is his statist PRIVATion property system got you feeling like you can’t Gambol about freely? Then contact me Thomas “Black and blue rear” McFinly. It is our mission at Indian Internets affairs to help you Gambol about freely, as you deserve! Remember! Fuck the white man.

            1. Somebody forgot their zoloft

            2. +3 Angus.

        2. Is on the loose again. Nice bicycle!

      3. I’ve got some blankets for you to take the OWS Gambol Drum Circle, neckbeard.

    2. The problem is he isn’t. Durbin doesn’t actually believe most of what he says.

      However his chosen career is professionally saying these things to achieve certain goals for his party and by extension himself.

      When people complain about “professional politicians,” Durbin is the distillation of it all. It’s his job, plain and simple.

  6. If Michigan were not a state in our country, then Dick Durbin would not be a senator in our government.

    1. Durbin is from Illinois.

      1. Them too!

  7. Thanks Durbin, ya’ dick.

  8. No, you don’t get it.

    Durbin WANTS the banks to raise fees in less visible ways.

    Durbin wanted to give retailers a legislative gift by capping the debit machine fees.

    But when the banks responded to Durbin’s action by directly and visibly raising the specific fee connected directly to his action, it made it possible for Durbin to be blamed. That was absolutely unacceptable to Durbin. He doesn’t care who gets fucked nearly as much as he claims about getting blamed for it.

    But if the banks get their revenue back in ways that customers won’t directly connect to Durbin’s amendment, that’s a win/win for him. He gets to corruptly hand out unearned benefits to retailers, and he gets to completely avoid any chance of getting blamed.

    Instead of providing a price break to consumers at the check-out as the law intends

    That was not the law’s intention. The law was intended to benefit retailers. Nothing more and nothing less. Maybe you can argue that consumers will indirectly see a benefit if retailers pass through their windfall, but a possible but unproveable indirect secondary effect can’t be a law’s intention.

    1. The way it really works! – not the libertarian/communist promise of the state withering away.

      1. A Fluffy +1!

    2. Fluffy is consistently the author of some of the most fierce and intelligent insights that can be found in Reason commenting threads. Hey Fluffy, I’m a fan.

      …+1?

  9. So, stupid people who don’t pay close enough attention will gt shafted.

    I don’t care about defending stupid people, and I pay close enough attention to my statements that I’d notice a change and take my business elsewhere.

    1. Gotta watch ’em like a hawk.

      And can’t trust ’em around grandma’s purse.

      1. Could you try again, only this time be coherent?

        Thanks.

        1. …capitalists doing the shafting.

          Problem?

          1. …is in the house.

            1. “Could you try again, only this time be coherent?”

              So the answer is no, got it.

              1. How does it work?

                1. “Could you try again, only this time be coherent?”

                  So the answer is no, got it.

              2. Verizon has released the Motorola Droid RAZR smartphone today. Very sleek, would be perfect for WI squaw’s elk-skin carrying bag. Post comments from the open plain and prairie or wherever Verizon’s footprint reaches (though they don’t leave an actual footprint). 11-11-11 at 11:11 am and Amazon sells for $$111.11. What a trip!

          2. “”will get shafted
            …capitalists doing the shafting.”

            No actually, you are completely and obviously wrong, it means “banks”.

            Try to get someone smarter than you to read to you, so you don’t make the mistake of telling someone else what they wrote means like a blathering fucktard, as you did there.

            1. Weird shit ya learn every day here.

              1. “Banks aren’t capitalists?”

                Nope, some are co-ops.

                “Weird shit ya learn every day here.”

                Yeah, well when you’re stupid like you are, and make idiotic blanket declarations, I imagine people point out where you’re wrong like I did a lot.

                1. This is the part where you moronically attempt to claim co-ops are capitalist, despite their very business model being diametrically opposed to capitalism.

                  Please, prove you’re an idiot some more.

                2. Come on, admit it, at least a few bankers are capitalists.

                  LOL

                  Ever see the percentage of co-op banks to regular banks?

                  The stoopid — and pedantic — is strong with you, chopper.

                  1. “Come on, admit it, at least a few bankers are capitalists.”

                    Admit you were wrong first.

                    “Ever see the percentage of co-op banks to regular banks?

                    The stoopid — and pedantic — is strong with you, chopper.”

                    In other words, you know I’m right and have to resort to insults rather than admit you were wrong.

                    This is the part where you moronically attempt to claim co-ops are capitalist, despite their very business model being diametrically opposed to capitalism.

                    Please, prove you’re an idiot some more.

                    1. “and pedantic”

                      By the way, I love when people like you cry about “pedantry” after you make a blanket trolling statement, and get a response, only it’s not a response you can actually refute.

                      You cry “I’m wrong, but it was because I was SLOPPY instead of IGNORANT”.

                      As though the reason matters.

                    2. Bankers are capitalists.

                      Can you show where I said “co-ops are capitalist”?

                      Cite please. kthnks

                    3. Cooperative banking in the United States…

                      NOTHING, except:

                      This section requires expansion.

                      https://secure.wikimedia.org/wikipedia/en/wiki/Cooperative_banking#United_States

    2. (Full name: joez Law of Teh Internetz) states that when writing a comment on a blog thread insulting someone’s intelligence, you will make a spelling error that makes you look like an idiot.[1] Common examples include “Get a Brain, Morans!” and “Your an idiot.”

      “So, stupid people who don’t pay close enough attention will gt shafted.”

      Pay closer attention!

  10. Dick Durbin is an embarrassment to my state. Yet knowing Illinois, he’ll easily be reelected.

  11. Hassan, it’s really not fair of you to have an intellectual argument with an unarmed opponent.

  12. Monocle Cat frowns on these shenangians.
    http://forums.collectors.com/i…..le_Cat.JPG

  13. “DO NOT PASS. BANNED. BLOCKED. PROHIBITED. Please, STATE, set the ECO-ENFORCERS out to put up barriers.”

    and then they go to church and pay their mandatory dues.

  14. I thought not.

  15. Am I free to gambol about the Stedding?

  16. For tonight’s listening extravaganza!

    http://m.youtube.com/index?des…..l=US#/home

  17. “Putting Customers Second”
    In capitalism stock holders come first.
    Only in a whorehouse do customers come first!

  18. Officer, am I free to gambol about forest and plain?

    Yes.

  19. Transparent fees are bad because it enables the consumer see how the banks are f-ing them and they change accounts to other banks? What?

  20. The Durbin Amendment will cost customers banking with Bank of America, JPMorgan Chase, and Wells Fargo close to $200 per year depending on the mix of fees they choose to adopt.

    And so now suddenly choice is bad.

    1. “Transparent fees are bad because it enables the consumer see how the banks are f-ing them and they change accounts to other banks?”

      And then:
      “The Durbin Amendment will cost customers banking with Bank of America, JPMorgan Chase, and Wells Fargo close to $200 per year depending on the mix of fees they choose to adopt.
      And so now suddenly choice is bad.”

      Do you regularly contradict yourself?

  21. I thought Reason was supposed to be above uneducated idiocy like this.

    Banks need their profits? I don’t need a friggin bank on every street corner. There are 4 within a block of me who have branches. You want profit? Close a few branches like any other business.

    Banks produce nothing. They are a drain on the economy. Mr Randazzo should look up velocity of money theory before he claims any knowledge of economics.

    Articles like this make me question why I read this magazine.

    1. Reason was supposed to be above uneducated idiocy like this

      At first I thought you were referring to the idiotic “+ me” game a few of the adolescents here are playing (and thereby contributing to the site’s failing reputation).

      Banks produce nothing.

      They make capital available for others to produce things. They aren’t farmers or builders or restaurants, but they make those enterprises possible. Without working capital, there can be no large-scale production befitting an industrial society.

      1. Did we read the same article? It wasn’t about lending, which has become a minor soure of revenue for most banks. It was about fees on consumers which have become a major source.

        That was my point, although admittedly badly made. If lending was still the banks primary source of income the reduction in fees would be white noise, and they wouldn’t care. They also wouldn’t need branches on every corner instead of productive businesses.

        What I mean by productive is a business which adds value somehow. Again lending does that, for both the recipient and those with savings being used to lend. What I am talking about is the drain of increasing the cost of goods and services via card fees (hidden or overt) and then funneling that money into non productive enterprise.

        The mere fact a banks customers are its product means something is wrong with the system.

        There was also plenty of investment prior to banks taking that role, and the cost of starting a business was less due to money n or being readily available.

        Also wonder why your savings account interest rates don’t even cover inflation any more? They used to.

        1. Did read; too dumb for comment.

        2. Also wonder why your savings account interest rates don’t even cover inflation any more? They used to.

          Ask Ben Bernanke.

        3. Did we read the same article? It wasn’t about lending, which has become a minor soure of revenue for most banks. It was about fees on consumers which have become a major source.

          From Bank of America’s latest 10-Q:

          9 months ended Sept 2011

          Card income 1,911 (6%)
          Service charges 2,068 (6%)
          Loans and leases 11,205 (33%)
          Everything else 18,632 (55%)

          9 months ended Sept 2010

          Card income 5,706 (7%)
          Service charges 6,112 (7%)
          Loans and leases 34,454 (40%)
          Everything else 39,202 (46%)

          Uh huh.

    2. “Banks produce nothing. They are a drain on the economy.”
      Under anything like free exchange, there is no enterprise which produces less than it charges and still exists.
      Therefore, banks *are* productive, even if those who read comic books for econ references can’t see it.
      You should put down the comic books.

    3. Banks produce nothing.

      Aside from connecting investors who have capital with businesses who need capital. But clearly that’s pretty minor. I mean, most households are perfectly capable of commercial lending on their own.

      1. In the narrow sense of transactions fees, banks produce nothing.

        Let me put it this way, If for some reason or another, you decided to let me hold, say $1000 of your cash for safe keeping, why am I entitled to $5 of it every month? Especially when that wasn’t part of the initial agreement between us?

        Banks are banks, they’re going to make their money off of their customers someway, but the debit fee was just retardely outrageous.

        1. “Let me put it this way, If for some reason or another, you decided to let me hold, say $1000 of your cash for safe keeping, why am I entitled to $5 of it every month?”
          Because the person ‘loaning’ you the $1K thinks so?
          Do you have a point, or just a whine?

        2. Uh, safekeeping, convenience, etc.?

          Banks have always charged transaction fees, just not upfront. If 1-month LIBOR is 5% (assuming the bank’s 1-month credit spread is trivial) yet your bank is only paying out 0.25% interest on demand deposits, what do you figure is actually happening? The answer: the bank lends at roughly LIBOR plus some spread to account for risk, and you accept a return far less than that, largely because you don’t want to keep money in cash. The bank pockets part of the difference, but some of it goes to very real services.

          Now that interest rates are near zero, it’s starting to actually cost banks money to have certain accounts. They have to protect those accounts, provide services, pay insurance to the FDIC, deal with cash flow management, etc. They can’t make it up because the lending environment is terrible.

          I live in Japan where I deal with this regularly. I’ve had banks refuse to hold my money in deposit. I have to pay a transaction fee to use an ATM outside of “work hours” (9-5). To send money, I have to use the ATM at the main branch otherwise I get a $5 fee. There are no checks, much less free checking. I have no online banking. There are no debit cards. When I walk in a branch, I expect to be greeted by a row of ATMs and a handful of tellers, not the other way around. All of those cost money, and at near-zero market interest rates, banks can’t hide the cost of those services beyond the zero bound, so they cut some of them and make customers pay for others. Fees hurt more than currency debasement, even if they equal in amount.

      2. In the narrow sense of transactions fees, banks produce nothing.

        Let me put it this way, If for some reason or another, you decided to let me hold, say $1000 of your cash for safe keeping, why am I entitled to $5 of it every month? Especially when that wasn’t part of the initial agreement between us?

        Banks are banks, they’re going to make their money off of their customers someway, but the debit fee was just retardely outrageous.

  22. I do love the manner in which you have presented this concern plus it does provide us a lot of fodder for thought. On the other hand, through what precisely I have personally seen, I just simply trust as the commentary stack on that folks continue to be on point and not start on a soap box regarding the news du jour. Still, thank you for this exceptional point and although I can not necessarily go along with the idea in totality, I respect your point of view.

  23. Am I free to gambol about the Stedding?

  24. Do what people like me who have no credit do and pay cash. Problem solved.

    1. Sorry, I lied about myself! I mostly write checks and keep my checkbook balanced. Still, problem solved.

  25. Weren’t they “extra” income? I’m not one to say their profits were too high before, but clearly, the banks make a lot of money. If these fee limitations had been in place from day 1, would banks profits be the same they are today?

    That is to say, are banks only trying to make up for “lost” revenue because it is a shock to the system to suddenly lose this revenue they used to have, where if they had never had it before, they wouldn’t be seeking to make these same profits? Wall street doesn’t like it when you suddenly make a lot less money, but who is to say Wall street would have demanded precisely the current level of profits if these fees had never existed in the first place?

  26. The “banks” that insist ontrying to make a profit onchecking and debit transactions need to have their access to fractional reserve requirements terminated. They are creating $10 of loans for every dollar of deposits and this still isn’t enough profit?
    The low pitched humming you hear is the founding fathers and GIANINNI spinning in their graves.

  27. Paying everything with cash is fine. However, as in our case, we do finance cars and our home. So far so good!

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