New banking regulation brings needed competition

Opinion: October 10, 2011 at 12:00a.m.

St. Louis Post-Dispatch: There is good news in the $5 monthly fee Bank of America plans to start charging debit-card users next year: Consumers can decide whether or not to pay it.

U.S. Sen. Dick Durbin, D-Ill., however, suggests that consumers find another bank.

Mr. Durbin sponsored the amendment to the Dodd-Frank Wall Street reform bill that Bank of America says caused it to seek its new form of revenue. The amendment limited the amount of money big banks could charge retailers for “swipe fees” every time they processed a debit-card transaction. Before Mr. Durbin’s amendment took effect on Saturday, big banks were charging about 44 cents per swipe, more than 1,000 percent what the Fed has estimated it costs to process such transactions.

Now, big banks are limited to making in the range of 400 percent profit per swipe.

Pity those poor profiteers who have been stockpiling cash while the nation bleeds jobs.

Before the new law went into effect, consumers were forced to pay the ridiculously high swipe fees passed on by retail establishments. The fees hit the poor particularly hard, as they tend to spend more of their cash at convenience stores and Wal-Marts and retail businesses that have had to pass on the fee in higher prices.

The new law reduces the pricing pressures on those retail businesses, and it has brought a new level of competition to the banking industry by exempting small banks from the new rules.

It would be naive to believe that all retail businesses will pass any savings on to consumers, but in highly competitive markets it’s possible that over time, consumers will see savings.

More important, the banking industry now will have more competition.

While Bank of America plans a new $5 debit-card fee, other big banks such as Wells Fargo and JPMorgan Chase are discussing smaller fees. Citibank hasn’t announced any such fees.

Some smaller banks and credit unions, which worked against the swipe-fee amendment, now are trumpeting the change in law as a way for them to compete with the big boys.

According to the Federal Reserve, there are 14,821 banks not affected at all by the new swipe-fee law.