Thursday, April 7, 2011

Talking back to the Banksters - Keep the Cap on Debit Card Fees!

Spot from American Family Voices

Simon Johnson has the story in today's NYT on grassroots efforts to push back against the Banksters' lobbying operation to water down Dodd-Frank financial reform:
As a lobbying group, the largest American banks have been dominant throughout the latest boom-bust-bailout cycle – capturing the hearts and minds of the Bush and Obama administrations, as well as the support of most elected representatives on Capitol Hill.

Their reign, however, is being seriously challenged – finally – by an alliance of retailers, big and small, on whose behalf a variety of ads are now running, including on television (such as this one, by Americans for Job Security), the Web (such as the one above, by American Family Voices) and a powerful radio spot directly attacking the too-big–to-fail banks.
The immediate issue is the so-called Durbin amendment –- a requirement in the Dodd-Frank financial overhaul legislation that would lower what are known as the interchange fees that banks collect when anyone buys anything with a debit card. Retailers pay the fees, but these are then reflected in the prices faced by consumers.

The United States has very high debit-card fees, colloquially known as swipe fees –- 44 cents on average (that amounts to 1.14 percent of the average purchase price of $39) and up to 98 cents for some kinds of cards. These fees are per transaction and although the formula is complex, the payment is a significant percentage of many purchases and poses a particular problem for smaller merchants. These fees are estimated to amount to $16 billion to $17 billion annually.

Other countries...have acted to reduce interchange fees – because the actual cost of such transactions is quite low. Think about it: the interchange fee for checks, which also draw directly on bank deposits, is zero...

The Federal Reserve was mandated with determining reasonable fees through a regulatory rule-making process, and, after some foot-dragging, the proposal is that interchange fees be capped at 12 cents.
Unsurprisingly, the big banks’ lobbying machinery sprang into action, arguing that the fee cap would hurt small banks and credit unions. Senators Jon Tester, Democrat of Montana, and Bob Corker, Republican of Tennessee, are offering legislation –- as is Representative Shelley Moore Capito, Republican of West Virginia –- that would postpone implementation of the fee reduction for up to two years, pending further study.

In Washington, the best way to kill something is to study it further.

This is an issue that cuts across party line...supporters of the big banks sit on both sides of the aisle. Tea Party-inclined Congressional conservatives are arguing that the Fed should not get involved with the market. And the Financial Services Roundtable asserts that the amendment is wrong from top to bottom. (Titanic ed. interjects: The FSR spent nearly $7 million on lobbying in 2009 alone and in the last two elections has given 46% of its campaign donations to Democrats and 54% to Republicans.) 
But this is a badly broken market, as James C. Miller III, the budget director under President Reagan, has argued. Too-big-to-fail banks are not a market – they are a government subsidy scheme, because they are backed by implicit government bailout support (to be provided at below market cost whenever needed).
These subsidies enable megabanks to borrow more cheaply and grab market share relative to smaller banks (those with less than $10 billion of assets.) On top of this, and working closely with the biggest banks, Visa and MasterCard have around 90 percent of the market for debit cards – hardly conducive to reasonable competitive outcomes.
At the same time, some on the political left are confused (or captured) by the assertion that lower interchange fees will hurt small banks and credit unions. This is a pure smokescreen – banks with less than $10 billion in total assets are specifically exempt from the provisions of the Durbin amendment.
This exemption was a smart political move, and it also makes economic sense, given the disproportionate size and power of our largest banks...
Of course, the big banks are threatening to punish customers in other ways if debit fees are capped — for example, by ending free checking...
So given their power and the position they occupy at the center of our economy,  the banksters will try to stick it to us one way or another. There are no silver bullets as long as they continue to have their current political and "market" power.  But the Durbin amendment is essential to moving reform forward - at the least it helps protect small businesses and their customers against predatory fees. The banksters will fight this - but it's great to see some outreach to the public by organizations that are fighting back.

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