Stuck In a Time Warp

The Durbin Amendment to Dodd-Frank was added to the bill at the last minute and had nothing to do with Dodd-Frank’s ostensible purpose, to address the causes of the 2008 banking crisis. The Durbin Amendment, named for Illinois Senator Dick Durbin, empowered the Fed to fix the fees that banks above a certain size can charge for debit card transactions. Such fees had been a good source of income for banks, and it was foreseeable that if they were slashed, banks would need to raise other fees and charges to make up the revenue. The California Bankers Association noted the likely consequences of the Durbin Amendment in August 2010:

Significantly, the Board is specifically directed to consider the “incremental” cost incurred by “an issuer” in the authorization, clearance, or settlement of a particular EDT. Also, it is specifically directed not to consider other costs incurred by an issuer which are not specific to a particular EDT.

Among other things, this means that the Board may not consider the fact that EDT interchange fees figure prominently in many banks’ account pricing strategies. As Congress and the regulators put pressure on interchange fees and overdraft fees as well, banks will find it increasingly difficult to offer free or low cost checking accounts with low minimum balances, and may resort to charging for debit card privileges.

Which is what Bank of America has announced that it will do. This provoked an outraged response from Durbin:

Bank of America announced Thursday it will charge its debit card users a $5 monthly fee beginning in early 2012, provoking fury from a senior Democrat.

The bank, the largest in the nation by assets, blamed its decision on the so-called Durbin Amendment, a provision of the Dodd-Frank financial reform law put into place by Democrats in 2010 that set limits on the fees banks could charge retailers for swiping their debit cards.

Bank of America said the economics of debit cards has been altered by the fee limit, which will take effect Oct. 1. Banks say the fees go to pay indirect costs of providing debit cards, such as fraud and overdraft protection.

It is inconceivable that any knowledgeable observer would be surprised that a likely response to the Durbin Amendment would be to charge a monthly fee for debit card use. Durbin, of course, is not a knowledgeable observer:

Senate Majority Whip Dick Durbin (D-Ill.), the namesake of the amendment, said the bank just wants to protect robust profit margins.

“It seems that old habits die hard for Bank of America,” Durbin said in response to the new policy. “After years of raking in excess profits off an unfair and anti-competitive interchange system, Bank of America is trying to find new ways to pad their profits by sticking it to its customers.”

What world is Dick Durbin living in? “Raking in excess profits”? “Padding its profits”? Even the casual newspaper reader knows that BoA, America’s largest bank, is struggling to stay alive. BoA lost money in 2010. This chart the company’s stock performance over the past five years:

Durbin is delusional if he thinks BoA is “raking in excess profits,” but, like many Democrats, he seems unable to accommodate his world view to reality. The only world they know is one in which plutocrats mint endless money by a means that, while not clearly understood, is likely nefarious. That world never existed, of course, but most liberals still cannot see private industry as anything other than a fatted calf on which the public sector can feast. And then they purport to be surprised when the policies they pursue destroy wealth, discourage investment, and impoverish the American people.

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