Richard Day: It's A Hard Rain Gonna Fall
Doc Cleveland: Horse Race? Or Hindenburg?
Before about a decade ago, I paid rent, insurance, and doctor's bills by writing checks and sending them through the mail. My wife paid by check at the grocery store. I had a credit card for traveling and large purchases, but used cash as much as possible.
As everything became more expensive, instead of carrying a thicker wad of cash I got in the habit of paying for gasoline, parking, and grocery shopping with my credit card, and tried to send an equal amount to the bank every month to avoid the interest. It was all too easy, though, to let the balance creep ever higher.
Now, I still buy lunch and other small purchases with cash, but I prefer my debit card for gas, parking and groceries. My debit doesn't work in the MTA machines, so I use credit there. Every night I enter my receipts into GNUCash, a free linux or windows checking program, and every month I reconcile the software balance with the statement balance.
I also pay my mortgage, insurance, utilities - just about anything I can - as electronic payments from my debit account. I can specify the date of payment and not worry about labeling and stamping an envelope that may arrive late or even be lost. We only write about two or three checks a month. We avoid overdrafts and late fees. We have convenience and we're staying within our income.
Someone at the office said that Bank of America (BOA) was to start charging debit card fees yesterday, and I was complaining to my wife about it last night. So I looked it up this morning, and found that such a challenge to convenience is big, big news and everyone has an opinion. The New York Times had a long article, Banks to Make Customers Pay Fee for Using Debit Cards:
Bank of America, the nation’s biggest bank, said on Thursday that it planned to start charging customers a $5 monthly fee when they used their debit cards for purchases.
The Times noted that other banks are also implementing or considering such fees, but did not mention that BOA will only charge these debit fees to their basic checking customers - who are probably their lower-income customers. We have direct deposit so we will be exempt, for now, but BOA is planning many other fees:
[BOA] has introduced an online-only account that charges customers for doing business at a local branch. It also plans to apply its new debit card fees to anyone who uses the card to make recurring payments like gym fees or cable bills.
Those are exactly the sort of bills I pay now, so that does look like a loss of convenience.
Citibank is one of the few that said it would not introduce a charge for debit card use. “We have talked to customers and they have made it abundantly clear that ‘if you charge me to use my debit card, I would find that very irritating,’ ” said Stephen Troutner, head of Citi’s banking products.
In, BofA's New $5 Debit Card Fee? Blame Dodd-Frank, Forbes saw it as a chance to slam the legislation:
Now, I’m no financial-regulations hater but nothing about the Durbin Amendment is good news for the consumers Dodd-Frank was trying to protect. I’d be singing a different tune if Senator Dick Durbin pushed for the cap on swipe fees for the sake of consumers but let’s face it – the Durbin amendment benefits no one except for retailers. It is completely infuriating (and probably shouldn’t be surprising) that one of the few rules to go into effect from the Dodd-Frank Wall Street Reform and Consumer Protection Act has nothing to do with protecting consumers.
In, Did Congress Kill the Debit Card?, the Atlantic says that we aren't actually paying more, we're just paying it to the bank instead of in higher retail costs, but that it will probably kill the debit card anyway:
... one angry Bank of America customer, ... feels the bank is "gouging" her. That's not quite right: she paid this fee before -- she just didn't know it. It was incorporated into the prices of the goods and services that she purchased with her debit card. The fee was then paid to banks by the retailer where she shopped. Now Bank of America is just cutting out the middle man to collect a portion of the fees. This move isn't meant to create new revenue for the bank, but to replace the revenue that Congress forbid them to collect through their old fee policies.
[But] ... retailers aren't cutting prices. Instead, they're pocketing the $7 billion or so they'll save in fees. While this could theoretically change in the future, they have indicated that they aren't cutting prices at this time.
So customers will end up paying more than they did before once this new law goes into effect, but not because the banks are creating a "new" fee, but because the government forbid them to make full use of their old one. This financial regulation effort will amount to a gift to retailers, courtesy of Congress.
I see paying for everything with debit cards as analogous to driving everywhere with personal automobiles. As long as the true costs were invisible, or acceptable, to consumers both were an irresistible convenience that encouraged shopping and consumption of all kinds, and everybody was happy. As the costs rise, people have to cut back according to their income level, and accusations fly.
I doubt that well-to-do customers will stop using debit cards, but I do think that those on the edge of solvency will be forced to reconsider buying everything they see with a swipe. Credit cards are just as convenient, but the working poor can't always get them, and since the 2008 crash, it seems clear that middle class people are wary of large credit balances.
It may be that the Durbin legislation is only a gift to upper class retailers as the middle class move to credit unions to get free checking, and curtail their impulse buying even more. The rest of us will have to adapt and move on.