Right now, one of “the most active lobbying efforts” ever is going on in Congress, but you might not have heard much about it in the mainstream media.
The fight is over the fees that banks collect from debit card transactions. Currently, the banks collect (on average) around 44 cents per transaction, but under Obama’s Wall Street reform act, the Fed can regulate fees charged by banks. The Fed has determined that it actually costs banks less than 12 cents per transaction — a 367% profit for the banks and adds up to $16 billion in fees every year. New regulations limiting the fees to 12 cents are due to go into effect in six weeks and the banks are fighting every step of the way.
Not only are the banks lobbying Congress, but they are also making threats to consumers. JP Morgan Chase is threatening to limit the size of debit card transactions, so for example, you may be denied any purchase greater than $100, or even $50.
What I find disingenuous about this is that the banks claim that they need to charge higher fees to offset fraud costs, but this sounds like BS to me. After all, unlike credit cards, debit cards take money directly out of your checking account. And unlike checks (which hardly anyone uses anymore), banks can electronically check your balance and grab the money before they even approve the transaction, so there is no danger like bounced checks (plus no expense moving paper checks around). So why would banks need to charge more in fees for debit cards than they do for checks?
But the real issue here is government regulation versus free enterprise. I’m sure the banks are screaming about government regulations, claiming that we should allow the free market to determine what people pay for fees. Unfortunately in this case we don’t actually have a free market. There is no real competition between banks, at least not for the average consumer. Our financial institutions have not only become too big to fail, they have become too big to compete.
So here is what I’d like to do. We eliminate regulations on banks like the new cap on debit card fees, as long as we split up the large banks (and credit card companies) to the point where they actually compete. There are a number of easy ways we could do this. The goal is to make it so that no financial institution has monopoly-like power to unilaterally set rates and fees. If they tried, their customers could easily switch to another bank that charges lower fees. Now that would be a real free market!
I would rather have government regulations creating free markets (by increasing competition), rather than having the government exercise detailed control over how much businesses can charge (like debit card fees). Of course, there will always be businesses where there can never be enough competition to ensure a free market (for example, utilities like power and water companies), but banks don’t need to be like that. We just need to split up the large banks so there is an actual free market where consumers (bank customers) have an actual choice.
Unfortunately, I don’t see Congress having the will (or even the desire) to split up the large financial institutions. After all, politicians love those huge contributions they get from large banks, and the revolving door between the banks and the US government mean that the foxes have already taken over the hen house.