October 3, 2011

Dick Durbin - oblivious to his own reality

I am the very model of a modern major general.
Democratic Senator Dick Durbin pushed hard for this, and now that it's happened, the obvious unintended consequence is his doing and he just doesn't see it.  He is oblivious.

Todd Zywicki at Law and Economics sums it up nicely.
This Saturday, government price controls on debit card interchange fees (which card issuers charge to merchants) go into effect. The controls are the result of the Durbin amendment to last year's Dodd-Frank financial reform legislation. They were enacted at the behest of big-box retailers such as Wal-Mart and Walgreen's, which stand to gain a multimillion-dollar windfall. But the controls are already transforming the retail banking landscape.

The Durbin amendment tasked the Federal Reserve with establishing the allowable maximum interchange fees. It originally intended to slash them by 70%-80%. In response to a firestorm of criticism, the Fed cut the fees about in half, to about 24 cents per transaction from an average of 44 cents per transaction, including a one-penny allowance for fraud prevention. The new fee limits apply to any bank with more than $10 billion in assets.
So they can't charge enough of an interchange fee to keep the debit cards viable.  So what has Bank of America done (and soon other banks will follow suit?  They've found someplace else to make up the fee - consumers.  There's a new $5 per month fee coming.  And Dick Durbin is hopping mad.
“Bank of America customers, vote with your feet,” the Senate majority whip said in a floor speech Monday. “Get the heck out of that bank. Find yourself a bank or credit union that won’t gouge you for $5 a month and still will give you a debit card that you can use every single day.

“What Bank of America has done is an outrage,” he added.

Bank of America announced last week that it will soon start charging most of its customers $5 per month for using their debit card — a move intended to recoup the revenue that the bank will lose under new federal regulations that went into effect Oct. 1. Those rules, authored by Durbin, capped the amount of swipe fees — what banks can charge retailers for processing debit cards.
What did you think was going to happen Dick?  Either the bank stops the debit card if the economics don't make sense or they make up the money elsewhere.  They've chosen the latter.  What is unconscionable Dick, is you thinking that this isn't your own fault.  Price controls are inherently destructive.  What is more of an outrage is your calling on people to boycott a bank that is trying to keep a product viable in the face of your silly regulation - something the free market could take care of itself via competition. And for good measure, your own party is busy trying to keep that very same bank afloat.
NEW YORK (TheStreet) -- The official bailout of the financial system may be over, but the government is apparently far from finished propping up big banks, as evidenced by the news that Bank of America(BAC_) has struck a deal to dump a bunch of near-worthless home loans on U.S. taxpayers.
Oblivious Dick, yet again.

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