Why Debit Card Fees Aren’t Going Away

And, a Deep Difference Between the Camps

A few days ago, Bank of America announced that it was canceling its planned $5-a-month debit card fees. Sen. Durbin (D-IL) immediately rejoiced on the Senate floor, taking partial credit for the change that he claimed was due to “a combination of reasonable regulation and consumers voting with their feet.” [1] Politico calls it “a win for President Barack Obama and Occupy Wall Street.” [2]

All of which is shortsighted. We’re still going to get charged those fees.

I pointed out in a previous post (see: Why Government Decisions Matter) that Sen. Durbin’s public attacks on BofA and their proposed fee were ironic, considering that the fee was a direct result of legislation he successfully attached to Dodd-Frank that capped debit card swipe fees charged to retailers. First off, expecting any other response on the part of the banks was ridiculous on its face, and demonstrates that he either has zero understanding of basic math, or the whole thing was a political song and dance meant to further endear the Democrats to those of an anti-Wall Street bent. Since Sen. Durbin does not come across as stupid, I will assume the latter.

For the record, it really is simple, basic math. If you write a law forcing a business to cut price X, they will respond by raising price Y. It’s that simple. Businesses aren’t going to provide services for free. If you regulate the price of a Big Mac to $1 (to help the poor!), McDonald’s will charge 6 bucks for a Coke. If you command that everything on the menu must be $1, then they will charge customers a $5 fee just to get in the door. See the result here–your actual price to get a combo meal goes up, and people that just wanted a Coke to begin with really get screwed. Or customers simply decide it’s no longer worth it to patronize these stores, and McDonald’s lays off employees due to loss of sales. It doesn’t matter that you intended to help the poor. This is the real-world effect of this type of government control over the economy.

Meanwhile, all of our taxes pay for the army of government bureaucrats working to enforce the harmful regulation, it’s harder and more expensive to start a business, and personal freedom is further eroded. (And Democrats continue getting votes because they say, “We cut prices on your Big Mac,” and the people cheer, and think no more of it.)

But I was talking about the debit card fees. They are not going away. The banks are going to get paid for that service. Dodd-Frank made them stop charging the way they were originally–so they attempted to put the fee up front. Everyone freaked out, so they took it back. This just means they’re going to put the fee somewhere else. Like a cover charge for McDonald’s, we will see interest rate changes, a reduction in some previously free service (like free checking accounts), etc. We’ll still pay the debit card fees. They’ll just be better hidden.

In a further irony, Sen. Durbin is now crusading against hidden and complicated bank fees–he wants them all simple and up front. Yet his policies help create the very situation he’s complaining about.

This is useful in that it illustrates a basic, fundamental difference between conservatives and liberals today. When presented with a problem, liberals often see a need for the government to step in and solve it. Conservatives, on the other hand, often want the government out of the way–because we understand that government solutions always have these unintended consequences.

In 1993, President Clinton attempted to deal with “unfair” CEO pay by capping the salary a company could write off on corporate taxes at $1 million. The next year, the ratio of CEO-to-worker pay, relatively stable for decades, began a ten-year spike that peaked at around 300:1. [3] Businessweek wrote that, “As a practical matter, the law… quickly established $1 million as the minimum base pay any self-respecting CEO expected from a major corporation.” [4] Companies began avoiding the new tax by paying CEOs in stock rather than straight salary–which led to more unintended consequences on the side, namely, the CEOs found themselves with powerful personal incentives to boost short-term stock gains at the risk of long-term health. (Not to mention that they also found themselves now paying a lower tax rate on their dividends than their secretaries paid on their salaries.)

Liberals, however, don’t see the changes in CEO pay or new bank fees as consequences of government interference. The government regulations are well-intended, so you’d have to have bad intentions to be against them, they say.

Conservatives look deeper. Intentions are important, but consequences are ultimately what really matter. Regardless of intent, if these regulations make things worse, they should go. If government interference in the market hurts us, we’re right to want less government interference in the market.

This means Dodd-Frank has to go. This means Sen. Durbin’s and President Obama’s economic solutions will not work. And this means we all need to support conservative candidates in the next few months so that these changes can take place.


[1] http://www.cbsnews.com/8301-503544_162-20128729-503544/dick-durbin-bank-of-america-decision-a-win-for-consumers/

[2] http://www.politico.com/news/stories/1111/67339.html

[3] http://www.epi.org/publication/webfeatures_snapshots_20060621/

[4] http://www.businessweek.com/magazine/content/06_48/b4011079.htm

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  1. #1 by David Andersen on November 8, 2011 - 8:26 pm

    Well written! The only thing I find incorrect is this:

    “Since Sen. Durbin does not come across as stupid, I will assume the latter.”

    • #2 by basicconservative on November 9, 2011 - 10:22 am

      Ha- well, I always try to give people the benefit of the doubt.

  2. #3 by Rebecca on November 13, 2011 - 12:08 am

    So thorough!!
    “This is useful in that it illustrates a basic, fundamental difference between conservatives and liberals today. When presented with a problem, liberals often see a need for the government to step in and solve it. Conservatives, on the other hand, often want the government out of the way–because we understand that government solutions always have these unintended consequences.”

    AMEN!! And history shows getting government out of the way is the most effective method.

    americaisconservative.blogspot.com

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