Tuesday, October 04, 2011
(But Wal-Mart doesn't deserve all the blame.)
Timothy Carney of the Washington Examiner helpfully notes the following regarding the new $5.00 monthly debit card fee that has many people unhappy with Bank of America:
... Walmart and the retail lobby ... used government to squeeze banks and fatten their own bottom line. Walmart won, banks lost, and now customers are stuck with a new monthly fee.Carney elaborates on how a government-mandated cap on interchange fees was slipped in as part of the Dodd-Frank financial regulation bill in his article, but incorrectly paints "the little guy" -- you and me -- solely as the victim.
Here's the background: Whenever you use a credit card or debit card to buy something at a store, the credit card processor (like Visa or Mastercard) and the issuing bank (like Bank of America or Chevy Chase Bank) both take a cut. The store may only get $9.70 on a $10 purchase.
How is that rate -- the "interchange fee" -- set? Until this year, it was set by market forces. Visa and Mastercard offer stores a service that facilitates sales and brings in more business. In return, they demand a cut of the sale. Walmart and Joe's Corner Store aren't required to accept debit cards or credit cards, but they do, which means that they decided the price was worth it. [bold added]
In fact, anyone who believes the government should be dictating how businesses set prices deserves a share of the blame: Pressure group warfare is one inevitable result of this belief being put into practice. Today's fallout is that the profit margin for banks to provide us with the convenience of debit card purchases is now too low for some of them to offer it for "free" (at least from our perspective).
There is plenty of blame to go around here: Shame on voters for electing politicians to do thing like rigging the economy like this (such as by making it look like housing is a better investment than it really is, thereby precipitating the financial crisis Dodd-Frank is alleged to address). Shame on Wal-Mart for going along with such regulations for a short-sighted gain at a business partner's expense. And shame on Bank of America for not making it clear exactly why they're having to charge this fee and, perhaps emphasizing it by charging per debit card transaction, vice using a flat fee. (Unless, of course, some government regulation prevents it from doing this.)
Likewise, everyone is a victim here. Whereas we should be free to enter into mutual, enforceable business agreements with others based on shared common interest, we are all subject to having these terms arbitrarily set by government officials -- after a scrum among any and all parties who imagine they have some say in someone else's business. The most obvious villain in this small story is Wal-Mart, but its next turn at victim-hood will come.
Nobody who thinks the government should be bossing everyone around has any room to complain about their new debit card fee -- a small sign that their wish has been granted.