How higher bank fees might actually help consumers

Few seem terribly pleased with Bank of America’s decision to charge its users $5 every month they use their debit cards. BofA blames Congress for passing the Dodd-Frank Act, claiming the law’s new regulations are responsible. The law, which was implemented in June, restricts the fees that banks can charge merchants when customers use debit cards to pay, lowering them from 44 cents to 24 cents. BofA claims that it is charging the new fees to recoup the lost money. But the retailers who lobbied hard for the new swipe-fee regulations insist that customers could still benefit from the changes — on their end of the equation, at least.

Target, for example, claims the swipe fees are the company’s second-largest expense, following labor. “They are one of Target’s largest single-expense categories. These fees represented hundreds of millions of dollars every year,” Jenna Reck, a Target spokesperson, told me. “We are in a competitive marketplace as a retailer, so any reduction in industry operating costs may likely result in lower prices to consumers.”

The National Retail Federation, a key lobbying group behind the swipe-fee change, accuses banks of hiding behind the new regulation as a way to gouge consumers. “Every time Congress takes a step to protect consumers, the banks use it as an excuse to raise fees,” the NRF said in a statement, claiming the fee caps would save merchants and consumers “billions.” During the fight on Capitol Hill, some retailers were even more candid. Stan Sheetz, CEO of the Sheetz chain of convenience stores, told the Huffington Post that swipe fees cost the company $5 million every month. “I am a die-hard capitalist pig,” he told HuffPost. “That’s why Visa and MasterCard piss me off.” (To really understand the swipe-fee battle, read HuffPost’s entire opus on the issue.)

To be sure, it’s fair to be skeptical that even retailers who benefit most from the swipe-fee changes will lower costs as a direct result. But even if that’s the case, Mike Konczal explains that there’s a benefit that consumers still stand to gain due to this new windfall:

[B]usinesses compete on all kinds of things other than price, and if the cost of using money goes down for business even if that isn’t transferred through price mechanisms there are other ways it’ll get transferred. It may go to wages, it may go to hours, it may go to quality of products, etc. But it’ll go somewhere.

Finally, there’s an argument that the swipe-fee rules will actually help the banking system itself, as well as the consumers who use it. Daniel Gross, for instance, argues that the new debit-card fees that Bank of America are imposing have more to do with bad decisions the banks themselves made before the financial crisis, not Congress.

Companies routinely get hit with higher costs, by the market or by regulation.... Healthy, smart companies can frequently figure out ways to cope without loudly annoying their customers.

But banks aren’t particularly healthy or smart, especially Bank of America. Check out this two-year chart of its stock. ... If not for the toxic legacy of Countrywide Financial, which Bank of America acquired in 2008, it might not be imposing a fee at all.... In some ways, the imposition of fees is a positive development. The concept of charging customers for a service is actually a more sustainable and intelligent way for banks to do business.

More on Gross’s vivisection of Bank of America here.