The nation’s retailers scored a big victory against the nation’s largest banks yesterday when the Senate voted to move forward with a rule to cap debit card swipe fees.
The so-called Durbin amendment puts a limit on fees banks charge retailers, like Wal-Mart for instance, every time consumers like you and I use our debit cards there.
The rule spawned a fierce battle between two very powerful industries: banks who said the fees are important and used to protect customers from fraud and retailers who said the fees are so exuberant that they’re forced to increase the price of the goods they sell to consumers.
In the end, retailers got their way and sometime next month the Federal Reserve will implement the rule which will drastically cut the amount banks can charge retailers each time you and I swipe our debit cards. But that translates into lost revenue for banks and that will translate into banks looking for ways to make up for lost revenue.
A report from RBC Capital Markets estimates banks will take an 80% hit to the fees they once collected from retailers. For a bank like JPMorgan Chase, which RBC says generated $537 million in fees from retailers in the 1Q 2011, that translates into a quarterly revenue loss of $430 million.
Bank of America would face similar losses per quarter but it would represent a greater percentage of its annual net income since it likely does more debit card business than its rival JPMorgan.
The lost money could translate into over one billion a year for a major bank, according to RBC.
(For banking industry investors, RBC says the revenue hit has already been baked into the share prices. “Even the most optimistic analyst EPS estimates already incorporated some assumption for a fee revenue hit as a result of Durbin, in our opinion.)
So what’s a money hungry bank to do now?
Enter innocent consumers who love the convienance of swiping their debit card for everything from a cups of coffee in the morning to bottles of beer at happy hour. Yes, your bank will shift its focus from retailers to you so it can make up for the lost money.
The fancy term for finding a way to make up for lost money is loss mitigation. In this situation, banks’ loss mitigation strategies “will lead consumers to face higher monthly account fees, minimum balances, per swipe fees, and other
fees as a result of Durbin,” RBC notes.
What I find completely ironic (and enraging) is that this amendment came out of the Dodd–Frank Wall Street Reform and Consumer Protection Act. You know, that crazy book of rules full of ways to overhaul and fix the financial industry and protect consumers.
So why is it that the one of the only Dodd-Frank rules to move along so quickly is one that will likely cost the consumer money?
Sure, the retailers have been saying that those swipe fees they were facing for years forced them to up the costs of goods and that the new rule will “allow retailers to hold down prices for consumers.” Does anyone really think that these retailers will mark down prices now or keep them as is simply because this cap has been implemented?
Let’s be real here, the National Retail Federation didn’t spend all their money, time and effort lobbying for the Durbin amendment in order to save consumers money.
So brace yourself: the price of retailers goods won’t drop as result of the cap on swipe fees, and on top of that banks are readying to nickle and dime you for basic banking services.