Price Caps On Swipe Fees Making Your Banking More Expensive

credit-card-swipe

Three years ago Monday the Senate passed the Durbin Amendment to the Dodd-Frank Banking Bill which sought to make the retail experience for Americans cheaper by capping the fees for debit and credit card swipes. Essentially, the federal government told the banks they were charging too much, and cut the price in half for them from the $0.44 industry average to $0.24.

But in a free market, price caps have consequences. And the consequences for this price cap have manifested themselves in higher prices for banking services:

…champions of the Durbin Amendment declared a victory for the American people. However, AFP opposed the Durbin Amendment. The victory for consumers was falsely proclaimed. Durbin’s amendment was actually a boon to retail companies who wanted the government to force debit card transaction costs downward. This did not change the real price of debit card transactions—that remained at 44 cents. Instead, it artificially lowered the price, leaving banks with a loss of 20 cents per transaction.

Because the Durbin Amendment ignored basic supply-and-demand economics, banks had to figure out how to cover their costs. In order to comply with the law, they had to figure out where to make up the losses. They found their answer in free checking accounts and debit rewards programs. According to the Heritage Foundation last July, the number of large banks offering free checking to their consumers declined from 96% in 2009 to 34.6% in 2011. In the months after the Durbin Amendment took effect, J.P. Morgan, Wachovia, and Wells Fargo also ceased offering debit reward programs.

Things cost what they cost. Businesses charge what they can in the free market in order to turn a profit. If you control one price, businesses are just going to make it up in other areas. This is a perfect case in point. Banks recouped the money lost on card swipes by levying fees on financial products which used to be free.

At best, American consumers broke even on the deal. At worst, we’re actually stuck paying more fees in the aggregate than we were before.

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • WOOF

    Your Aunt sneeze, your banking fees increase.
    Your bank loses a fortune on Feral Weasel.feed derivatives,
    your banking fees increase.
    Your bank makes a fortune in defaulted Argentine Bonds,
    your banking fees increase.
    Bank loses your deposit,your banking fees increase.

    • http://sayanythingblog.com Rob

      I know you don’t care about facts, but the trend prior to this shift was for more and more banking products to cost less. Checking accounts, savings accounts, etc. The trend was away from fees

      Now we’re going back, because the government put in place price caps.

  • meh

    “Things cost what they cost. Businesses charge what they can in the free market in order to turn a profit. If you control one price, businesses are just going to make it up in other areas. This is a perfect case in point. Banks recouped the money lost on card swipes by levying fees on financial products which used to be free.”

    The free market also allows consumers to choice businesses that offer better services. Banking is a competitive industry because of the number of options that are available. If my bank starts charging for checking or increases service fees, I will just find a competitor. Free market right?!

    • WOOF

      Too Big To Fail,
      Not competitive.
      “Yankee pitching gives up 12 runs. score reset, Yankees win 3-0.
      Boston fans charged $700 milillion.

      • http://sayanythingblog.com Rob

        You are incoherent

        • two_tinfoil_hats

          You aren’t paying attention.

          Score: 89th out of 100.

    • http://sayanythingblog.com Rob

      It’s not a free market when the price increases are the result of price caps in other areas.

      • meh

        Price caps should spur competition and innovation. As a bank, I want to be the lowest cost with the best service, even if that involves undercutting my competitors. I do admit, if government was creating a price floor my view point would be different. .

  • http://twitter.com/NARNfan Saturdays & Sundays

    All of this hits the poor harder, too. It’s just a waste. Pawn shops and payday loans.

    • WOOF

      Big banks run payday loan operations.
      “most people associate high-interest, fast-cash payday loans with
      check-cashing shops on the street or online, a handful of commercial
      banks, notably Wells Fargo & Co. and U.S. Bancorp, offer similar
      advances.”

      • http://sayanythingblog.com Rob

        What’s wrong with payday loans? They provide higher-priced financial services, sure, but they’re also lending to very risky borrowers.

        You’d put the pay-day lenders out of business denying lower-income Americans of a financial service they need.

  • Waski_the_Squirrel

    I would rather see business freed up to pass the “swipe fees” on to the consumers who are actually using plastic. As a bonus, it might turn more people to cash and decrease the amount of personal debt in the country. Best of all: it’s transparent and pulls government out of the picture.

  • WOOF

    This is obvious. the banks are above the law, above reform.
    They cheat, they steal, embezzle without consequence.

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