04 October 2011

Debit card fees

Reason: Hit & Run | Peter Suderman | You Can't Call It An Unintended Consequence If You Knew It Was Going to Happen

Traditionally, financial institutions have charged retailers interchange fees for every debit card transaction. Retailers weren't pleased with this and successfully lobbied to have those fees capped at substantially reduced rates. Starting this week, a Dodd-Frank amendment sponsored by Sen. Dick Durbin will cut the average per-transaction fee from about 44 cents to roughly 24 cents for large banks. [...]

[Debit card fees are] exactly what critics predicted would happen. Indeed, it is perhaps the least surprising regulatory consequence of the Obama administration's tenure so far. Here's Todd Zywicki of the Mercatus Center predicting the outcome back in 2010, while the fee cap was still being debated:
A reduction in interchange fees will have to be offset by increased revenues elsewhere or a reduction in costs. For example, issuers could try to increase the revenue generated from consumers through higher interest payments, higher penalty fees, or reinstating annual fees.
I've seen BofA's new fees reported in a dozen different media outlets and not a single damn one of them mentioned that this is an entirely foreseeable reaction to a couple of senators "helping" by picking winners. As if the costs of running a debit card business, or the desire to make a profit from the investment in doing so, are just going to go away because Dick Durbin waves a magic wand.

Of course MSNBC wouldn't mention Dodd-Frank as being related to this, but Fox didn't bother to either. The WaPo and NYTimes didn't see fit to mention it. Even the WSJ radio skipped over this. Don't these reporters look for causes of events?

(NB: I haven't done an exhaustive search of these outlets. For all I know they eventually mentioned this. But in the initial reporting I saw/read/heard, none of them brought it up.)

I heard one person explain the cause of the new fees was "bankers' greed." I told him that's about as good an explanation as saying a plane crash is caused by gravity. Bankers were greedy last year, when these fees didn't exist. They are greedy now, when they do exist. Either they got substantially more greedy in the past few months, they were too stupid to think of doing this before now, or something else in the world changed to make this happen.

We still need a word for unintended consequences that are entirely foreseeable. See also: when unintended consequences aren't.

PS I'm actually happy with the new set-up.  I haven't used a debit card to make a purchase in years. During those years I was paying for a debit card system I never used, but those payments were obfuscated by being channeled through higher prices any time I bought something from a merchant who accepted debit cards.  I'd be happier with a system which charged users per-transaction rather than per-month, but this still inadvertently moved us closer to having the people who use a system being the ones paying for it.


  1. They may well have been unintended; foreseeable only means it was *possible* to predict them. ;-)

  2. Fine, not "foreseeable" then. Foreseen.

    I agree that intention and predictability are not the same. But in that second link above ("when unintended consequences aren't") I argue that even if a consequence of a decision is not being explicitly sought, if that outcome is a predictable, expected outcome, it can not be said to be "unintended."

  3. "Care Bear Stare" - ha!

    Do you do strictly cash? Credit? I've always found debit most convenient and hassle-free--what am I missing?

  4. I find that when I have cash in my pocket I'm more likely to make impulse purchases, so I do almost all credit card.

    The con is that it's harder to keep track of how much money I actually have, but I've found mint.com helps with that a lot.

    The pro is the 1+% cash back. I make a credit card payment every two weeks when I get paid, so the balance stays low, which prevents the cash back benefit from being offset by finance charges.