Debit Card Fee Debacle
Big banks shouldn’t rest easy, the debit fee debacle isn’t over.
The Justice Department is reviewing claims by a lawmaker that banking industry officials colluded on boosting debit card fees, which would’ve violated antitrust laws, according to Reuters. Congressman Peter Welsh (D-Vt.) asked the Justice Department to investigate the banks last month after banking officials’ public statements indicated that the banks may have cooperated to raise fees to make up for revenue lost because of a cap on debit card swipe fees that took effect on October 1.
Big banks, especially Bank of America, were hit with waves of criticism from consumers and lawmakers alike after announcing their plans to charge customers fees to use their debit cards for purchases. Banks and bank industry officials initially defended the fees, saying they were necessary to recoup revenue lost from new financial regulations. But some say the swipe fee cap didn’t go far enough; the National Retail Federation and other retail groups are suing the Federal Reserve for buckling to bank industry lobbyists and capping the fee at 24 cents instead of the initial proposed amount of 12 cents.
Banks were initially defiant in their defense of the debit fees, with BofA CEO Brian Moynihan last month arguing the bank “has a right to make a profit.” When the bank first announced the fee, a spokeswoman told Reuters that “the economics of offering a debit card have changed.”
After President Obama criticized banks for charging the fee last month, American Banker Association president Frank Keating offered a similar criticism.
“It’s disappointing and puzzling that the President would attack a private corporation for responding to government price fixing that has fundamentally altered the economics of offering a debit card,” Keating said in a statement.
Though BofA and others ultimately backed away from the fees, it still may not be enough to undo the damage they already caused. More than 650,000 people opened up new credit union accounts between September 29 — the day BofA announced the debit card fee — and the first week of November, according to the Credit Union National Association. That’s more than the 600,000 that joined credit unions in all of 2010.
Cg42, a firm that consults with banks, estimates that the top ten retail banks will lose $185 billion in deposits over the next year if they don’t address consumer concerns.
In October, Visa and MasterCard were sued over allegedly fixing prices of ATM access fees, violating antitrust laws.