Inside Financial Services

Senator Durbin Ought To Lay Off Bank of America

And President Obama needs to learn the way the world works. Neither man's jaw-boning is doing the banking system--or the economy--much good.

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Did you read what Dick Durbin, assistant majority leader of the United States Senate, said on the Senate floor Monday? From The Hill:

Bank of America customers, vote with your feet. Get the heck out of that bank. Find yourself a bank or a credit union that won’t gouge you with $5 a month and will still give you a debit card you can use every single day.

What bank of America has done here is an outrage. [W]hen the announced they were charging a $5-a-month fee for use of the debit card, they went overboard. They are overcharging their customers.

So here’s the number-two Democrat in the Senate urging a run on the largest retail bank in the country! What a great idea!

Durbin’s undies are all twisted, of course, because BofA has imposed what people are calling the “Durbin fee”-a $5 per month charge to certain of the bank’s debit card holders-in response to the passage last year of the Durbin Amendment, which limits what banks can charge on debit interchange transactions. BofA and other banks will lose billions of dollars in revenue as a result of the cap, and have to try to make it up somehow. Thus the $5 monthly fee. To those of us who live in the real world, BofA’s move was entirely predictable and rational. The company has a duty to shareholders to maximize returns. Duh. Durbin shouldn’t be surprised by what the bank has done.

And here’s yet one of the Senate’s leading Democrats denouncing BofA’s decision as an “outrage” and accusing the bank of “overcharging their customers.” What world is he living in? Customers find value in debit card services. Banks should be fairly compensated for providing them. This isn’t difficult.

As it is, the various “reforms” that Congress has foisted on the banking industry lately have done nothing but cost consumers money. The Durbin fee isn’t the only new charge banks have come up with. Free checking is also a thing of the past at the largest banks, thanks to the Fed’s rules governing NSF fees. And rates banks charge on credit card loans have soared, because of the CARD Act. Much more help like this from the Democrats in Congress, and soon retail banking customers won’t have any money left over for actual deposits.

I’m assuming that Dick Durbin, a standard-issue Illinois hack, knows that he’s mouthing nonsense and is simply playing to the faithful. He thinks that’s his job. If the rest of us have to endure baloney like his, that’s the price we pay for having cable TV.

Worse, though, is what President Obama had to say about BofA’s new fee. “You don’t have some inherent right just to get a certain amount of profit if your customers are being mistreated,” he told George Stephanopoulos this week. ” . . . This is exactly why we need this [CFPB]. We need somebody whose sole job it is to prevent stuff like this.”

Oh brother. Larry Summers really needs to try to have another sit-down with this guy. President Obama is so ignorant about economics, remember, that he believes that productivity growth is a bad thing, not a good thing. Now he’s telling the banking industry it doesn’t “have some inherent right just to get a certain amount of profit if your customers are being mistreated.” Really? I doubt he understands how clueless that statement is. To begin with, banking customers are pretty good at figuring out when they’re not being treated well. If people think they’re not getting the service they deserve, they can walk across the street. Easiest thing in the world. The CFPB can’t serve as a stand-in for native common sense. It will just make doing business more expensive.

Second, and more worrisome, the banking industry (any industry, for that matter) does have a right to a certain amount of profit, despite what President Obama says. No, I’m not talking about anything in the Bill of Rights. It’s called the cost of capital. If the government prevents banks from earning some minimum return, the industry won’t attract any new capital. Instead, capital will flee the business. This is the banking industry we’re talking about. Even President Obama, if he thinks about it long enough, should be able to realize that a banking industry that’s chronically unprofitable via government fiat would not be helpful to the economy as a whole. He must be able to figure that out, right?

In the meantime, everyone would be better off if the politicians took a break from their jawboning. A strong, profitable banking industry capable of meaningful credit creation benefits everybody. I’m at a loss to understand why anyone, on either side of the political aisle, would be against that.

What do you think? Let me know!

38 Responses to “Senator Durbin Ought To Lay Off Bank of America”

  1. Leo

    Officials on both sides of the aisle need to consider “cause and effect” for all legislation. While the Durbin bill might have been well intended the result is causing an entire industry to finds ways to replace lost revenue. Banks don’t have a lot of pretty options – raise fees or worst, layoff employees. It is never a good time for the unintended consequences of legislation to put innocent people out of work, particularly now when all rule makers are beating the bushes for ideas to stimulate the economy. When the impasse over the federal budget caused the credit downgrade again, the actions of legislators caused an invisible tax on all Americans by way of higher interest rates associated with the downgrade. None of these people get it…frustrating!

  2. will

    Neither one of those two beacons of Democratic / liberal thought could lead this country out of a thick fog. More proof (as if any more is needed) that liberalism is indeed a brain disease. Obama should pay more attention to the likes of (former) supporter Johnson, founder of BET – to paraphrase, he said O should just shut the f*** up and stop demonizing banks, the rich, etc.

  3. puredakota

    The President and Senator Durbin both need to learn that “Intention and Affect” are not the same as “Cause and Affect.” Most of the unintended consequences of their actions have been foreseeable, and predicted. The institution of the debit card fee is one of those predictable outcomes. I’m sure Senator Durbin is chagrined about the fact that his primary contribution to DFA will be memorialized in a a very unpopular fee with his name on it.

    Washington will need to decide what it wants banks to be. If it wants banks to be innovators who are willing to take risks (including making loans to new and expanding businesses) it will need to allow the banks to be compensated for those risks. Earning a few percent won’t get the job done. Maybe the President and Senator Durbin haven’t had time to think through this, but bankers sure have.

  4. puredakota

    Note to Bill: I don’t know whether Tom would pay a monthly fee of $5.00 or not. But I’m pretty sure Tom could handle that decision without unsolicited advice from the President and a U.S. Senator.

  5. puredakota

    Note to Bill: I don’t know whether Tom would pay a monthly fee of $5.00 or not. But I’m pretty sure Tom could handle that decision without unsolicited advice from the President and a U.S. Senator.

  6. Bobbie

    It is difficult to understand why Dick Durbin, or any congressman, would be involved in card fees charged by any financial institution. The Debit card system seemed to be working just fine the way it was. Retailers were able to handle fees charged to them as a routine matter. This also gives the news media, & others, more opportunity to beat up on Bank of America. Anyway, leaving any bank for a $5.00 monthly fee isn’t good thinking. What is $5.00? A cup of special coffee……..an ice cream cone……….a bag of peanuts….1 1/2 gallon of gas…………..etc. etc. etc.

  7. mudwall jackson

    i know it’s a strange concept to conservatives, but it’s called market demand. all durbin is saying is that if you’re a bank of america customer and you don’t like the fee, take your business elsewhere. it’s the american way.

    you want a profit, bank of america, earn it the old fashioned way by providing better service at a competitive price. capitalism doesn’t guarantee success.

  8. fair and balanced

    If Durbin is wrong to voice his opinion from his soap box don’t you get the least bit tired of being the soap box appologist for the consistantly mismanaged and chronically overcompensated bank mangers who have destroyed their own shareholders value? Jeeez! BOA is the ‘Poster Child’ of classically bad actors and there is little to defend in any of their actions, unless you have been short the stock . Say, you haven’t been short while you publish this stuff have you now?

  9. puredakota

    Note to Bill: I don’t know whether Tom would pay a monthly fee of $5.00 or not. But I’m pretty sure Tom could handle that decision without unsolicited advice from the President and a U.S. Senator.

  10. Mark D

    Well said Tom! This was predicted months ago…when the gov’t passed legislation limiting debit transaction fees there were many an article say banks would rebalance profits by charging elsewhere…and here we are, due to Durbin & Co.

  11. judge.roy.bean

    to Mudwall Jackson’s comment below, Durbin was saying a lot more than just take your business elsewhere. He was saying the fee was an outrage and that the bank was “gouging” its customers for charging a fee for service. The use of the debit card and the infratstructure and security around that costs an institution money. It should get some return on its investment. There are many ways for a customer to avoid the “fee” if they so choose. Use cash, write a check, use a credit card, maintain minimum balances. If people “choose” to use their debit card, now there is a cost to that customer thanks to Congressman Durbin. He is the one to “thank”!!

  12. caw

    Thank the stars for Dick Durbin. You conveniently forgot to mention the tranaction fees the banks already collect on debit and credit card transactions.

  13. really?

    Regulation that killed the overdraft fee is good. Period. Banks were cheating people into free checking that was not free. Everyone here must remember quarterly presentations where US banks were proud to extract $100-$300 of fees per so called free checking account. Where is everyone’s memory? This was bad business. People could not just walk across the street because all banks were doing the same. It became the industry norm. And no individual bank was to blame. In the absence of regulation, if you play clean then you just lose money. You have to wait for many years until the consumers get smart and then you can play clean again and be rewarded by smart consumers voting with their feet.

    The regulation that stopped this nonsense was good regulation. Similar regulation has been enacted in years past here in the UK and in other Western capitalistic democracies. The introduction of monthly fees is expected, and a more honest way for people with low balances to compensate the banks for their services.

    So please please stop complaining about the overdraft fees being gone and replaced with monthly fees. its good business and its good policy.

    What I agree with Tom on is the strange comment that the president (or “this guy” as referred to in this article) made about the banks’ profits. While his statement if read literally is very reasonable, it can cause alarm to american bankers who (as is painfully clear from the other comments here do not trust him) should be hearing clear and not confusing or easy to misinterpret statements. The president must somehow convince you that he is not out to get you. He has clearly so far failed to do that. It will make for a difficult 15 more months, or if he wins the next election, 63 months.

  14. alanasora

    Dur bin should get another job. One that he has to “earn” his salary, not one paid for by the government!!!!!

  15. jsc173

    Is he channeling Chuck “run on the bank” Schumer? One would hope that, whether you think BofA are blithering idiots or not (they are) that such comments by elected officials would be met with the appropriate rebuke from all quarters. Then again, in Illinois you have to commit a significant number of actual crimes before there’s the risk of ouster from public office.

  16. Peter

    The Obama Administration and the Democrats would like nothing more than to see the bigs banks fail so that they can be nationalized and become their private piggy banks for the benefit of their constituents. They are doing this slowly and methodically by chipping away at the banks’ profit centers until there will be nothing left.

  17. Ken Greenberg

    I think they’re taking their cues from Putin. This whole thing has been disgraceful, and the banks have been way to bashful about getting the real story out there. Unfortunately for BofA, they didn’t handle the news very well. It’s a PR nightmare right now.

  18. judge.roy.bean

    This was one of the most predictable new fees in the history of th world. The banks warned lawmakers of this, but just like anything else, when the government gets involved, the taxpayers lose.

  19. Jim Pare

    I read that comment from President Obama earlier this week, and simply felt deflated. I have tried to give him the benefit of the doubt up until now……inherited a bad economy, trying to fix errors made before his time, winding down expensive wars, etc. But when our President makes a comment that indicates he does not understand where a publicly held company’s first duty lies, then we are lost! I cannot fathom how he misses the basic premise that SHAREHOLDER returns are management’s fiduciary responsibility. So very upsetting and disappointing to know that our leader is not smart enough to grasp what average folks on Main, Elm and Maple Streets all over America know. May our country survive another 15 months!

  20. sgr

    Our community organizer in chief has a deep-seeded hatred of banks. It’s on a psychological level that ain’t changing. His grandmother (the typical white person) was a banker and the bread winner in the family. She paid for everything for the two beta-males in the household. Therefore banks emasculated the Sorreto household. Sounds crazy? Maybe. But not crazier than the nonsense spewing from our Prez’s mouth.

  21. ChickenLittle

    I agree with a number of the free-market support statements you make. The rest is a bit much, don’t you think? Not BofA’s charges — which are indeed within reason for a company to make profit-driven decisions. But your insistence that somehow the evil “Democrats” are out to destroy business and industry. Plus, your link to Obama and his view on productivity growth is a pretty weak one. Does it quote Obama himself? No. Ah, forget it. You just keep on grinding that ax.

  22. Ace

    Brings back the memory of Mark Twain saying, “Imagine you are an idiot. Now imagine you are a member of Congress. Wait, that is one person.”

  23. Cat

    Why isn’t Durbin calling out the merchants on which discounts they have planned to offer their customers as a result of this cost save? Has he already forgotten his platform on why he started this mess?

  24. Bill in Ohio

    Right on. It seems like most Liberals have no clue when it comes to free enterprise. Obama is clueless. Thanks for calling him out.

  25. Barrydemo

    Tom,
    I’m semi-retired(from Chicago) & live in Florida now. I watch WGN Chicago to keep up. Senator Durbin was on TV the other day holding a BOA card. Ranting like an idiot. He has no clue about business & economics.
    I guess voters get what they deserve voting people like this into office.
    We need more Business people in Politics rather than Lawyers.

    Keep up the good work,

    Barry

  26. bentrolls@hotmail.com

    How right you are. How are we ever going to overcome our problems with assholish comments like this.

  27. really?

    Regulation that killed the overdraft fee is good. Period. Banks were cheating people into free checking that was not free. Everyone here must remember quarterly presentations where US banks were proud to extract $100-$300 of fees per so called free checking account. Where is everyone’s memory? This was bad business. People could not just walk across the street because all banks were doing the same. It became the industry norm. And no individual bank was to blame. In the absence of regulation, if you play clean then you just lose money. You have to wait for many years until the consumers get smart and then you can play clean again and be rewarded by smart consumers voting with their feet.

    The regulation that stopped this nonsense was good regulation. Similar regulation has been enacted in years past here in the UK and in other Western capitalistic democracies. The introduction of monthly fees is expected, and a more honest way for people with low balances to compensate the banks for their services.

    So please please stop complaining about the overdraft fees being gone and replaced with monthly fees. its good business and its good policy.

    What I agree with Tom on is the strange comment that the president (or “this guy” as referred to in this article) made about the banks’ profits. While his statement if read literally is very reasonable, it can cause alarm to american bankers who (as is painfully clear from the other comments here do not trust him) should be hearing clear and not confusing or easy to misinterpret statements. The president must somehow convince you that he is not out to get you. He has clearly so far failed to do that. It will make for a difficult 15 more months, or if he wins the next election, 63 months.

  28. H.L.

    Personally, I agree with Durbin’s feelings but it is also none of his business as a U.S. Senator to use his office’s bully pulpit to enrage people. I have thought BofA is a miserable place to do business for years and I very happily left them years ago. I did vote with my feet. You think they are gouging you, fine. There are plenty of community banks and credit unions who would love to have your business. No better way to illustrate that to BofA management.

  29. Bill

    Hey Tom, would you pay $5 a month to use your own money? The same money BAC pays nada on in interest to you. Yeah, I didn’t think so.

  30. Financial Guy

    Durbin is an idiot. He and Barney Frank should be tarred and feathered (oh wait, Frank might actually like that) and deported with all the illegals.

  31. Mark

    I can’t really add anything else to the above comments but if the dems really want to intervene in an industry – how about letting me pick and choose which channels I pay for on cable or satellite. Why am I force fed a hundred channels of crap to watch the two or three that I want. Now THAT’S an outrage! Where can I march in protest?

  32. Mark

    I can’t really add anything else to the above comments but if the dems really want to intervene in an industry – how about letting me pick and choose which channels I pay for on cable or satellite. Why am I force fed a hundred channels of crap to watch the two or three that I want. Now THAT’S an outrage! Where can I march in protest?

  33. Geoff

    Where is the announcement from major retailers that they will be giving rebates to customers using debit cards because of the reduction in interchange fees? Walmart has 7.2 billion purchasing transactions annually (snopes.com) with an average transaction of about $60. If half of the transactions are completed with debit cards, and assuming a 60 cent reduction in average interchange fees per transaction, Walmart will save about $2 billion annually. So what Durbin has essentially done is shift $2 billion annually from B of A to Walmart. Where is the outrage from Durbin and Obama that Walmart has not announced plans to rebate that money to its consumers? Wasn’t that the purpose of the Durbin amendment–to have retailers pass the savings on to consumers? Why aren’t retailers upholding their end of the bargain?

  34. Randy Boyer

    I can’t for the life of me understand why the banking trade groups have bowed down to CFPB and said they’d try to get along with them. Where’s their courage? Warren, Cordray, Date, and the sponsoring senators like Durbin are extorting thieves who are simply trying to ruin the banking industry and make it into a profitless public utility. We should have fought them at every turn and should continue to speak out at every opportunity. You get in bed with dogs and you will get fleas.

  35. Paul Sr

    “In the meantime, everyone would be better off if the politicians took a break from their jawboning. A strong, profitable banking industry capable of meaningful credit creation benefits everybody. I’m at a loss to understand why anyone, on either side of the political aisle, would be against that.”

    Unless of course their goal was to break the banking industry… so they could save it! Why people can’t see what they are doing amazes me.

    It goes like this. Without our money, Congress is powerless. There is no more money. What to do? Bring out the Ways and Schemes Committee. Their job? Declare crises. Save the nation (therefore the people) by taking over the industry. Stir the pot. Add some heat and bring it to a boil. The people will demand it. Damned be the banker. “Cut off their heads.” (Quote taken without permission. Thanks Rosey)

    Can’t you see where this is heading?

    My customers used to ask me what was for free today whereupon I would take a deep breath- hold it – exhale and tell them the air that they breathe. Can’t say it any longer though. They’ve found it as a convenient revenue source through “global warming” and carbon taxes.

    The monster is HUNGRY and needs fuel. Money is the fuel that feeds it. Where can it get it? Wherever it wants , but it needs the people’s permission. Take away the fuel and the monster gets angry, violent and delusional, spinning around the country seeking more fuel from more fools . Before it dies of starvation, it will strike out in all directions like the pathological narcissist that currently leads it blaming everyone and anyone that it can.

    Let it die (figuratively speaking- this is not a threat to The One so relax boys.) When it does, through successful elections, lets be sure not to anoint another One or any other one with such a voracious appetite.

  36. Randy Boyer

    I can’t for the life of me understand why the banking trade groups have bowed down to CFPB and said they’d try to get along with them. Where’s their courage? Warren, Cordray, Date, and the sponsoring senators like Durbin are extorting thieves who are simply trying to ruin the banking industry and make it into a profitless public utility. We should have fought them at every turn and should continue to speak out at every opportunity. You get in bed with dogs and you will get fleas.

  37. Mike

    It didn’t escape my notice that Dick Durbin’s criticism of Bank of America’s $5.00 a month debit card fee didn’t mention his own eponymous legislation. 🙂 On Durbin’s home page he criticizes BAC for the amount of revenue they will likely generate from the fee. What he doesn’t mention is how much of that will actually drop to the income statement. It costs around $200 a year to service a checking account. Without the new fee in place accounts that hold much less than $3,000 would lose money what with net interest margins of around 3.5% and the debit rate cap.

  38. Joe

    I can’t understand why these politicians are not going after the retail industry. They are getting a windfall from the Drubin amendment and I really doubt this is being passed on to consumers. Did anyone think it would? The president also said banks can charge what they like as long as there is accountability and transparency, adding it is appropriate for the government to play an oversight role.

    How is this fee not transparent? I guess BofA should have simply raised fees on the checking account product like other banks did.

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