Banks Hoping they Paid Politicians Enough to Protect Billions in Excessive Fees
USA consumers pay huge fees on debit cards not found in most other rich countries. Other countries provide debit cards with much cheaper fees than USA banks mandate now given their anti-competitive oligopolistic pricing power. I haven’t seen anyone (that isn’t in the pay of banks) arguing for keeping excessive fees in place. But there are lots of people being paid by the banks (including most likely, “your” representative).
Banks want a favor — at your expense
The big banks are pressing Congress for a favor that will cost the average American household $230 a year. The bankers argue that the favor is needed to support small community banks. But since the lion’s share of the favor will be collected by just four banks, it might be cheaper to subsidize community banks with a check direct from the Treasury.
David Frum, special assistant to President George Bush, is exactly right.
Banks charge an average of about 1% on debit card transactions. In Australia, where swipe fees are regulated, banks charge half as much — and still earn a profit.
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[banks] are lobbying hard to repeal the cap on debit card fees in advance of the July date when Dodd-Frank goes into effect… Congress is not swayed by arguments. It is swayed by clout — and on this issue, it is the banks who have the clout.
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Based on that experiment, economist Robert Shapiro of Sonecon estimates that about 56% of the value of reduced swipe fees will reach the final consumer. That’s the basis for his calculation of savings of $230 per household. That’s also the basis for his further calculation that reduced swipe fees will translate into a one-time gain of 250,000 new jobs.
The new Republican House majority appropriately mistrusts government regulation. But if the financial crisis taught us anything, it should have taught that financial regulation is different from other forms of regulation. Invisible charges imposed by a financial cartel is not my idea of a free market.
The caps were part of the huge bailout taxpayers gave banks and were meant to be a partial watering down of a few of the smaller favors their bought and paid for politicians had given them over the years (as “punishment” for their misdeeds).
Why we need to wait for us to bail out the banks to stop having us hand over $230 each every year to banks that have anti-competitive pricing power (due to favors congress and administrations have given them at the expense of everyone else) is beyond me. But we keep electing politicians that only decide to water down the favors given top donors when millions of Americans are thrown out of their jobs. And when less than 10% of those jobs have been added back to the economy they already are looking to favor their donors at out expense.
It will be another in the long line of congress siding with those that pay the congressmen lots of cash against the interest of the country if they allow these banks to exploit their oligopolistic position (which congress has granted them for large amounts of cash). The country can’t afford to keep paying billions to those that pay congress a few tens of millions.
On a personal finance note, you should just use credit cards and pay them off each month and avoid all the downsides of debit cards.
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