Last week, the Justice department announced it will be investigating banks and their trade associations regarding the increases in consumer fees imposed by banks for using debit cards. House democrats asked the Attorney General’s office to investigate whether banks and their trade groups violated anti-trust law by colluding on whether to impose fees in response to the Durbin Amendment which placed a cap on the amount of money banks charge retailers for accepting debit card transactions.
Earlier this month, Anthony Randazzo and I wrote an op-ed describing the unintended consequences of the Durbin Amendment which led banks to impose the array of fees now subject to the Justice Department investigation. We noted how as a result of the amendment bank customers will now be subject to a plethora of non-transparent fees totaling around $200 per year depending on the customer’s bank. But far from a quasi-monopoly of colluding banksters, institutions like USAA have also raised costs to consumers in direct response to the Durbin Amendment.
Bloomberg finance analyst, Cady North, conducted a study on the Durbin Amendment titled “Business Impact of the Dodd-Frank Debit Fee Cap” and in an interview summed-up her findings with the following:
“The banks are…still going to find ways to make-up that revenue. The networks… are seeing some revenue opportunities, and even though the retailers might be seeing some benefits, [smaller retailers] like small coffee shops and…convenience stores…might be actually losing a lot of money as a result of [the Durbin Amendment].”
Basically, big box retailers like Wal-Mart and Home Depot stand to make hundreds-of-millions-of-dollars while smaller mom-and-pop-shops lose money and consumers lose money to banks.
However, house democrats hope to change that last unintended consequence with the help of the Justice Department. But the problem is that it is misdirected, and extremely late.
If representatives truly wanted to help consumers, they would have investigated whether big banks were colluding through monopoly power to charge exorbitant fees to retailers prior to the passage of the Durbin Amendment. Should such an investigation prove this to be true, the bank’s practice of charging high fees could be dealt with through the legal process under existing anti-trust law. Should the investigation prove the fees to be a fair business practice absent collusion and monopolistic bullying, then simply it is the cost of doing business, and we as consumers must take responsibility to choose our banks and retailers wisely. But this wasn’t done.
Instead we have in place a piece of bad legislation with the unintended consequences of raising costs to the consumer, incenting further use of credit (as opposed to cash or debit), lowering small retail owners profit margins, transferring profits to huge corporations like Wal-Mart, and now an investigation into whether banks acted lawfully to legislation that resulted from a powerful retail lobby and crony capitalism.
If banks are infringing upon consumers rights through collusion and monopoly power, they should be dealt with through a legal process already in place, otherwise let the market determine whether transaction costs are too high. Government has failed two-fold by not investigating whether banks were violating anti-trust law, and again by passing damaging legislation as a result of their ineptitude. American consumers and small-retail businesses are now paying for their failures.