Bankers' Association Blames Government For New Fees

Keating

The American Bankers Association (ABA) is blaming what it calls “government price fixing” for new bank fees, manifested most recently by Bank of America's $5 a month charge for customers who make debit card purchases.

In response to a significant consumer outcry over the Bank of America fee, ABA President Frank Keating says new government rules that forced banks to lower the fee collected from merchants for each debit card “swipe” has fundamentally altered the economics of offering a debit card.

"One prime culprit is the so-called 'Durbin Amendment,' which capped debit card fees below industry costs,” Keating said. “This provided big-box retailers with $7 billion in windfall profits while forcing banks to lose money on every debit card transaction.”

The Durbin Amendment bears the name of Sen. Dick Durbin (D-Ill.), who authored the legislation. Durbin sees the issue a bit differently, and disputes the notion that banks are losing money on every debit card transaction. In fact, he called the old fee – 44 cents per transaction - “unreasonably high.”

Profit or loss?

Durbin

The Retail Industry Leaders Association (RILA) agrees, citing Federal Reserve data that it said showed the old fee, which was 44 cents but is now 24 cents, netted banks a profit of 1100 percent on every transaction. RILA says it's still a pretty hefty profit.

“Crying poverty and adding fees, all while collecting a 600 percent profit on every transaction is one heck of a public relations strategy,”said RILA spokeswoman Katherine Lugar.

Keating also blames retailers for the new bank fees, saying part of the cost of the system is being transferred from retailers to consumers. But he made clear he thinks most of the blame lies in Washington.

"The Durbin Amendment and its consequences are symptomatic of a broader problem,” Keating said. Massive amounts of new regulation, government constraints on earning revenue and a tough economy constrain banks from helping our economy get back on track. Policymakers need to take a hard look at the real cause of higher consumer costs.

Durbin, however, indicated he isn't backing off.

“Bank of America showed us this week that some big banks and credit card companies care less about providing customer service than they care about squeezing customers for more fees,” Durbin said. “The best defense for American consumers and businesses against unfair fees is a transparent and competitive financial marketplace overseen by reasonable regulation.”