Bank of America’s new $5 monthly fee for having a debit card is getting painted as a public enemy, but columnist Michael Hiltzik for the Los Angeles Times says we should be giving it a great big hug.
The swipe fee system for debit cards defined opacity. Visa and MasterCard firms lined up banks to issue the cards and merchants to accept them, and handled marketing campaigns aimed at persuading consumers to use them instead of cash or checks by portraying cash customers as squares or rubes. (Of course, without disclosing that using debit cards isn’t free.)
They also fixed the interchange fees for their bank clients, who pocketed the largest share. This gave Visa and MasterCard an incentive to jack up the fees over time as a way of attracting banks to their networks. This price-fixing, as Durbin related to JPMorgan Chase Chief Executive Jamie Dimon in a blistering letter in April, was “entirely unregulated.”
Hiltzik’s main point is that what the fee has done is made visible the real costs of using a debit card. Instead of getting drawn in with a “free card” that we then end up getting charged higher prices for because the merchants have to build in the cost of the interchange fees into the stickers on the shelves, now we know exactly what we’re paying for. And you can leave a bank that’s charging a debit card fee for another one that’s not, just like how Southwest Airlines has made inroads by offering free checked bags.
It shouldn’t be a surprise if the bank’s announcement drives lots of its customers away, to credit unions and regional banks poised to welcome them with low-cost or no-cost debit card services. That’s the virtue of price transparency in our system of free enterprise, and for that the proper response may be: Thank you, Sen. Durbin.
Of course, this argument is also kind of saying that merchants are going to lower prices for consumers now that their interchange fees are lower. But With times, credit lines, and cash flows as tight as they are for merchants right now, I don’t really expect that to happen. They’ll take any help they can get to keep their head above water and build in cushion.
Not everyone agrees that we should be lifting up Bank of America in a chair and shouting its praises. Calling the timing suspect, members of Congress are asking the Justice Department to investigate as to whether Bank of America worked together in an anti-competitive manner with other banks to simultaneously launch the new monthly debit card fees.
A debit of gratitude to Bank of America [LAT] (Thanks to Dan!)