Consumers Win Debit Card Victory, But War Against Reform Continues

Sometimes, even an institution that is "too big to fail" is not too big to be influenced by energized citizens on a quest for basic fairness.

With a national "move your money" day coming up on November 5 [1] and facing the prospect of losing tens of thousands of customers, Bank of America announced today that it was canceling plans to charge debit card users $5 a month [2] for the service.

Much of the credit for this goes to a young Washington-area Bank of America customer, Molly Katchpole. After watching Bank of America drain her meager checking account through various fees, she launched a petition on Change.org [3] protesting the new debit card fee and very publicly withdrew her money from the bank.

Bank of America, as well as other banks considering or testing similar fees, argued that they were compelled to impose these fees on consumers as a result of the Wall Street reform law Congress passed last year. Here's the real story: [4] Banks, in cahoots with the Visa-Mastercard duopoly, had been charging merchants inflated fees for processing debit card transactions—averaging from 1 percent to 2 percent of the cost of the transaction, often much higher on small transactions. The actual cost of processing a debit card transaction is often just pennies, but the bank could get $1 on a $50 transaction, a profit margin in excess of 1,000 percent on the transaction. That profit margin extracted from the merchants, in turn, was added by those merchants into the cost of everything you buy. You ended up paying a debit card fee just by buying from a merchant that accepted a debit card.

Against that backdrop, Congress instructed the Federal Reserve to set some ground rules for how much banks could charge to process a debit card transaction, lowering debit card fee charges to about 24 cents.

What we saw next was bank CEOs like BofA's Brian Moynihan acting like spoiled brats [5]. "If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger,” The New York Times quoted Jamie Dimon of JPMorgan Chase as saying [6].

Except that there is no such thing as being entitled to rip off your customers. A restaurant knows that it has to charge a fair price for both the soda and the burger. In a free and open marketplace, the restaurants that violate that rule will find themselves out of business. Unfortunately, banking—where the six biggest banks control half the banking assets in the country and more than one-third of the consumer deposits—is not the restaurant business. And almost all of the big six were contemplating some form of debit card scheme that would do an end run around federal law and the Federal Reserve regulation.

Nonetheless, banks don't have all of the power. People still have some. There are still hundreds of banks and credit unions [7] that, while they don't have the market power of the big six, still have a business ethic based on the principle that they exist first to serve the customer and the community, not to generate exorbitant bonuses to executives and inflated stock returns to shareholders, consumers be damned.

Many of these banks and credit unions are among the financial institutions that did not squander their assets in Wall Street speculation before the financial crash, and are not sitting on $2 trillion in cash in what is nothing less than an effort to hold the economy hostage until their right-wing political benefactors regain full control of the levers of power in Washington.

The Bank of America announcement is worth cheering, but only for a moment. As The New York Times article announcing the reversal notes, Bank of America and other big banks are coming up with other ways of extracting money from consumers, including higher monthly changes for checking accounts and higher fees for basic services. Keeping these fees reined in and properly disclosed will require a continued reform battle, in which all of us will have to be Molly Katchpoles against the millions of dollars banks spend annually to keep control of the legislative and regulatory agenda in Washington.

It's still worth considering that even with the debit card decision, there are still nine other reasons to switch from Bank of America, as Nomi Prins writes at ZeroHedge.com [8]. As Matt Taibbi wrote this week [9], "One definite tactic that Occupy Wall Street can adopt, going forward, is educating people about the perfidy of certain financial institutions and convincing people to do what they did back in the days of apartheid, which is disinvest. If everyone were to start pulling their money out of the worst-offending banks, that would have a profound effect on the markets and may function as a great short-cut to political change."

The last sentence of the Times article offers a hint of the propaganda battle that will continue: "JPMorgan has said it would lose $300 million each quarter as a result of" the debit card rule; "Wells Fargo said it would lose $250 million a quarter." That's spin, of course. It is not their money that they are losing; it is our money that we are no longer losing. Bank of America earned third quarter profits of $6.2 billion this year; that should be quite enough. If they want to earn more money, they can put those profits to work in the form of loans to businesses trying to expand and create jobs or into communities struggling to rebound from the Wall Street crash they helped to create. They can help us fix the economy instead of strip-mining our wallets and perverting our democracy.