In response to a recent article about the 3 reasons U.S. banks face imminent failure, it seemed appropriate to offer a brief explanation to our readers why Bank of America will begin to charge many of its customers $5 per month for using their debit cards. Yes it DOES look like yet another huge corporation finding another creative way to gouge the little guy of lots of nickels and dimes.
But we’ve dug into this a little. We’ve discovered that, rather than blaming big banks, perhaps we should look at Washington D.C.
Banks in general have really been on the ropes in the past few months. Rumors of bank failures in Spain and Italy, followed by steep stock declines last week in American banks and Moody’s downgrading of Bank of America and Wells Fargo, compel people to wonder if there are alternatives to commercial banks.
And with this small, annoying fee Bank of America intends to impose on the Average Joe, it’s human nature to look for someone, or some ONE entity, on whom to focus our anger.
Well, blame Washington D.C.
QUICK HISTORY: In December 2009, Congressional Representatives Barney Frank and Chris Dodd proposed a bill that would introduce sweeping reforms in the financial sector of the United States. With voters stung by some risky, even unethical, investment schemes on Wall Street which ultimately led to both the housing bubble burst and a Wall Street collapse, many in Congress felt compelled to do something. By June 2010, the bill was passed on party lines (Democrats for, Republicans against). After further negotiations through subcommittees and some wrangling with the Federal Reserve Bank, the bill was given a final legal blessing June 29, 2011. The law will take effect October 1, 2011.
Included in the Dodd-Frank Wall Street Reform and Consumer Protection Act was an amendment introduced by Senator Dick Durbin (D. IL) that, put simply, reduced the fees banks could charge stores when customers used their debit cards to make purchases. It always sounds so simple when legislators immpose fee limits to some behemoth organization, or demand that they pay employees more, or even attempt to set the prices these private companies can charge. Problem solved!
Except that Bank of America did the math, and read the law. It saw that it would lose $X because Congress told them to not charge as much for this service. They examined the law, and saw that the law did not prevent them from imposing a monthly charge to the consumer. Hence, they responded.
WHAT WILL HAPPEN NOW: Look for other larger banks to follow suit. Senator Durbin has already written a very defensive missive to Chase Bank in response to a rather scathing critique they made of his Amendment.
If there is a moral to this story, it’s that citizens will always pay, out of their pockets, for the supposedly benevolent acts of Congress. Lawmakers cannot merely wave their regal staffs and tell private businesses to simply charge less, or to pay more, without those businesses finding a way to make up those losses elsewhere.