The effect of price controls

The big news is that the big bank is imposing a $5/month fee on debit card users. Senator Durbin thinks this is an example of corporate greed going after excess and unfair profits. The bank is trying to stay alive after Durbin’s amendment to the Dodd-Frank bill defined the rate structure for debit card use. Hinderaker says the Durbin amendment was stuck in a time warp.

“The Durbin Amendment to Dodd-Frank was added to the bill at the last minute and had nothing to do with Dodd-Frank’s ostensible purpose, to address the causes of the 2008 banking crisis. The Durbin Amendment, named for Illinois Senator Dick Durbin, empowered the Fed to fix the fees that banks above a certain size can charge for debit card transactions. Such fees had been a good source of income for banks, and it was foreseeable that if they were slashed, banks would need to raise other fees and charges to make up the revenue.”

The California Bankers Association noted the potential consequences of such price controls.

“Among other things, this means that the Board may not consider the fact that EDT interchange fees figure prominently in many banks’ account pricing strategies. As Congress and the regulators put pressure on interchange fees and overdraft fees as well, banks will find it increasingly difficult to offer free or low cost checking accounts with low minimum balances, and may resort to charging for debit card privileges.”

What this boils down to is a government action based on a false, but common, premise that has well known, but unforeseen to its proponents results. The upshot is that the efforts to reign in the supposed greed and nefarious intent of the money handlers make their most significant impact on the less well off end of the citizenry. Unless you have a lot of money in the bank, it is going to be more difficult and costly to use bank services such as debit cards.

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