Bank of America’s scrapping of plans to charge customers for using debit cards may look like a win for consumers. After all, the embattled group, led by Brian Moynihan, is the largest U.S. retail bank and has the most to lose from rules halving the fees it can charge merchants. And B of A’s climb-down means virtually no large bank will now be enforcing such levies – JPMorgan, Wells Fargo and others recently shelved their own plans. But banks will find other ways to make up for as much as $8-billion (U.S.) in lost fee income.
In fact, that’s already started. Citigroup, for example, never intended to impose an explicit fee for customers who used debit cards. But it is either reintroducing more general monthly fees for those whose account balances are below a certain amount, or increasing the hurdle needed to avoid paying them. Many of these charges disappeared over the past decade, in part thanks to competition sparked by online banking and in part thanks to growing revenue from the broader use of debit cards.
Such methods, at least, are pretty transparent. That won’t always be the case. Another, more opaque option for banks is to entice more customers to use their credit cards. There aren’t any regulatory limits on their swipe fees – the Durbin Amendment stuffed into the Dodd-Frank Act didn’t tackle them at all. It would mean going after more subprime borrowers. That’s potentially worrying if it gets out of hand, as it has in the past. But in the short term, banks could make money twice over: not just from merchants, but from late fees and interest charges from those who don’t pay their bills on time.
The upshot of the regulatory limit ushered in by Senator Richard Durbin’s bill is beginning to look simple: If banks charge their clients more and retailers don’t pass on the costs they have saved, then consumers are potentially getting fleeced twice. Whichever side of the debit card fee debate one stands on, chalk up yet another terrible unintended consequence of misguided regulation.