In case you missed it, Bank of America has vetoed the federal tax on debit cards.
That’s right, BofA’s $5 monthly debit card fee, which generated a firestorm among consumers, has been eliminated. But according to many Tea Party groups, that fee was actually a tax imposed by Washington due to new regulations. So, following that kind of thinking, it appears that BofA vetoed the tax. Except for one thing — nearly none of the other banks bought into this BofA BS that “the regulations made us do it.”
At the same time, a corporate titan like BofA inadvertently laid bare the myth that all business taxes and the costs of regulations are simply passed on to consumers. Some libertarians use that claim to argue that there’s no sense taxing businesses at all. That might make sense if every sector of the economy was dominated by a monopoly corporation.
At issue here is a congressional provision that limited debit card fees charged by banks to retailers for each transaction. Federal investigators have found that a bank’s cost for processing a customer’s debit card transaction averages about seven to 10 cents. But retailers and merchants were being hit with a fee of about 44 cents for each card swipe.
That’s a profit ranging from 340 percent to 530 percent.
When Congress stood firm and limited the fees to 24 cents, Bank of America, a “too big to fail” bank that received nearly $100 billion in federal bailout money, announced that it was creating a $5 monthly fee for debit card holders. The bank executives blamed the fee on Congress and said it was needed because, in effect, the lender could no longer rack up huge profits under the old system of swipe fees. Several big banks indicated they would probably follow suit and a few established an experimental monthly fee in certain regions.
That all ended when the initial public outcry became a roar. A woman in Washington with no experience in organizing or PR quickly collected 150,000 signatures online protesting the new fee. Most banks quickly backed off and several gleefully placed advertisements that said they would never impose such an onerous fee on their customers. And small businesses that had put up with BofA’s huge mark-up on swipe fees in the past were aggravated that the bank was complaining about the new federal limits.
Stories started flowing in that suggested thousands of BofA customers had switched to small community banks or credit unions where fees are normally not attached to any services.
BofA had been exposed as a fraud by their competitors.
Despite the multi-billion profits the bank had posted lately, BofA bank thought their customers would act like sheep and quietly pay the extra money. But a national poll found that one-third of Americans would switch banks if their lender implemented a monthly fee.
The outrage was heard from all corners, from Twitter to Capitol Hill.
So, what was the response by CEO Brian Moynihan to this backlash? He said he was “incensed” by the public criticism. He also boasted that BofA has financed numerous businesses and developments in each community where they are located. But Moynihan never mentioned that the bank is preparing to lay off 30,000 workers and plans to eliminate hundreds of branch offices across the nation. Or that BofA exploited loopholes and paid no federal taxes last year.
So, what was Moynihan’s response after BofA reluctantly pulled the plug on the fee? He said that the bank’s decision was made to keep customers happy and to demonstrate the lender’s responsiveness.
To prove that they are (now) willing to do whatever makes the customer happy, BofA is running millions of dollars worth of full-page ads with smiley faces in the nation’s big-city newspapers. That’s a pretty expensive way of trying to recover from a business boondoggle.
Meanwhile, it appears that the finance industry is dropping its advertising campaign that argued the new fee limits on debit cards was an unreasonable burden. The bank moguls complained that they would lose a combined $6 billion to $8 billion under the new restrictions. What they didn’t mention is that the banks make about $48 billion a year on various debit and credit card fees – a windfall that didn’t exist a decade ago.
It’s also worth noting that when debit cards first became commonplace, the banks attached no fees. The cards were viewed as a cheaper, electronic version of a paper check and actually produced a savings for lenders.
So, maybe we should all be pleased that a corporate “tax” we have been paying for years was finally chopped down to size.
