Monday, November 07, 2011

Banks Drop Debit Fee because the Market Works, not due to Occupy.

When the Durbin Amendment to the Dodd-Frank bill passed limiting the amount of money banks collect from merchants each time a customer uses their debit card, it was inevitable that banks would try to figure out a way to make up the lost revenue. The result was the $5 a month debit card fee. Although as a result of Dodd-Frank, I was expecting higher bank fees, like everyone else I was unhappy when I received notice from my bank that they would be charging a monthly debit card fee.

I am so entangled with Union Planters and value the personal relationship with my banker that I was not going to switch banks. However, I did express my displeasure to my banker and I was going to maneuver around the fee. On one of my accounts I almost never use the card anyway. I use a credit card that gives me points toward cash-back, and then monthly I automatically pay the card in full. There is an annual fee for having this card, but I still come out ahead. To avoid the fee on my and Louella’s joint account I was planning to get a second card and do the same thing on that account. In the meantime, on this second account, we were using checks and cash.

A dear friend of ours who we know very well was very upset about this new fee and she closed her Union Planters account and opened an account with the Old Hickory Credit Union. Many people I encountered were upset about this new fee. Despite it being the result of government action that caused banks to impose this fee, the banks would have been wiser to just eat part of the loss and make up part of the lost revenue in a less transparent manner such as reducing the interest rate on cash balances in checking accounts, raising fees for overdrafts and increasing interest rates.

The Occupy movement and their friends in the mainstream media have been spinning this story of consumer discontent with this new bank fees and the banks dropping the fees as if it is the result of political pressure and a victory for Occupy. It is not. My friend who switched banks did not do so out of any left-wing affiliation or political motivation. I was not going to take actions to avoid this fee because I was motivated by Occupy or any other political movement. The result would have been the same without the Occupy movement. Consumers have power. The banks dropping this new bank fee is much like Coke backing off of New Coke and Ford dropping the Edsel. The market works.

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