Saturday, 1 October 2011

Hooray for debit card fees

Bank of America, in perhaps one of its dying acts, has announced that debit card users will be hit with a five-dollar monthly fee. Despite the gross excess of the charge, this is a good thing. Instead of banks silently and almost secretly extracting value from retailers through their monopoly control of plastic, those customers utilizing the convenience now must see—and feel—its cost.

The ostensible source of the change is a new government limit to the banks’ gouge-per-swipe fees. As usual, the banksters are determined to howl with outrage over this feeble attempt to interfere with their looting of the productive economy. Its apologists are quick off the mark to blame Dodd-Frank, the new financial regulatory framework, for forcing them to assault their customers in this new way. They don’t want us to know that at 21 cents a swipe, they’re still reaching deep into the consumer pocket, just not quite as deeply as pre-Dodd-Frank when they collected on average 44 cents per debit.

The credit card industry is one of the most grotesque scams perpetrated on American consumers since the sale of snake oil for rheumatism. They were first offered as a convenience for travelers or large purchases to avoid the risks of carrying cash, but then we were seduced and encouraged to use them to buy toothpaste. Interest rates were supposed to reflect the minor costs of floating us the purchase price of our items for 30 days or for allowing us to pay off the merchandise in quotas, which also enabled stores to extend credit without the headache of pursuing deadbeats.

But then the hyper-inflationary 1970s gave banks permission to match the country’s sky-high overall interest rates as they climbed into the upper teens, and naturally once those fell back to earth, the credit card owners continued to charge at the peak while obtaining funds for a fraction. That turned the business into a gold mine as anyone who slipped behind on payments could easily be trapped in lucrative debt peonage. Not content to simply offer financial services, banks had found that they could insert a needle directly into the budgetary veins of working Americans and permanently siphon off their blood. Now that BOFA et al. have acquired the habit, the withdrawal symptoms are undoubtedly agonizing.

According to a consumer advocate interviewed on The News Hour Friday night, the cost of processing a debit card swipe is about 4 cents, so banks are still going to make a killing. That won’t stop them from screaming bloody murder and trying to shift customer outrage to government regulators who dared to moderate their pursuit of all the money, all the time. Count on the biggest banks to bump up their fees in tandem so that few mortals can escape the new regime by shifting their accounts to the competition.

A real innovation would be to allow retailers to offer discounts for cash payment, something the credit card monopoly furiously resists as they know that buyers would then realize that the ability to get instant credit has a cost. Under the current system banks get showers of gold while store owners and merchants, i.e., the real economy, are stuck with the golden showers, forced to fork over a hefty percentage of credit card sales for the privilege of offering plastic transactions.

This fight is far from over, and we cannot rely on the political establishment to hold the line against further bankster intimidation. Meanwhile, a shift back to broader use of cash for everyday payments looks like a healthy resistance tactic for consumers suddenly aware of this hidden cost benefiting no one but Uncle Scrooge.

1 comment:

Maureen said...

In Spain, retailers will often tell you that if you pay in cash, they´ll give you a discount.