Unintended Consequences Could Mean Fees For Debit Cards

Earlier this year, our government passed, and Pres. Obama signed into effect, a law (Dodd-Frank Wall Street Reform and Consumer Protection Act) that capped the amount of fees banks can charge retailers.  It was intended that retailers would lower prices, because they were paying less in interchange fees.  Nice idea, but not so good in practice.

They forgot one immutable truth: the law of unintended consequences.

Let’s see how this works. 

In June, California Governor Jerry Brown signed into law a bill that forced Amazon to start collecting tax on all sales made to California residents.  The goal was to help the almost bankrupt state by raising $317 million a year in new taxes.  Sounds good, right?

What the law of unintended consequences delivered, instead, was Amazon firing its 10,000 affiliates.  The result is that Amazon does not have to collect taxes; the state loses tax revenue on the terminated affiliates; and the state already bankrupt state of California will probably pick up the additional expense of the unemployment benefits for a majority of the 10,000 affiliates.

The airline industry did the same thing when they began charging for baggage fees, meals, soft drinks, blankets and pillows.  If you have flown recently, you have probably noticed that everyone now carries their luggage on board:  I feel certain the flight attendants’ unions will soon be requesting higher salaries and hazard pay for all of their members juggling overstocked overhead bins.

If one believes in the law of unintended results, you would have to believe there will be undesired results to hundreds of banks, brokerage houses and the financial system as a whole from the Frank-Dodd bill.  We can almost count on a different outcome than congress and the senate intended.

Like, for instance, millions of unhappy debit card users and retailers.

Suntrust announced recently that they were going to start charging $5 per month to customers who have a basic checking account and use the associated debit card.  Suntrust is not the only one. Wells Fargo is working on a $3 per month charge, and Chase is testing a $3 per month fee.

Does anyone have a problem with this?

Let’s see, the banks are paying around 0.75% interest on a CD and next to nothing on money market funds.  They received billions of dollars in my tax money to bail their butts out of trouble, and now they want to charge me to access my own money?

So, what other ways can I access my own money? Paper checks, credit cards and cash. Paper checks!

How many people are going to enjoy waiting in line at the local Piggly Wiggly waiting for those in your checkout line to be writing checks?  How much of a slowdown is that going to produce multiplied by millions across the country?  How much more expensive is it to process a check than a debit card?  Who is going to bear those increased costs?  And aren’t checks “paper” when we’re all supposed to be “Going Green”?

I may be turning green,  as I will be holding my breath waiting to see if any consumers are actually protected by this massive piece of unfolding legislation. 

Before your bank or credit union begins making usurous changes to your checking account product menu, it would behoove you to sit down and consider every possible outcome created by the law of unintended consequences.

And yes, dropping free checking, increasing fees, adding new fees, dropping rewards programs, adding performance requirements, and minimum balance requirements all qualify as negative changes – no matter how much time and effort you spend trying to spin such changes as being improvements or enhancements.

All these negative changes are causing millions of checking customers to leave their current bank.  Don’t assume that because your bank isn’t a big bank that some of your customers won’t drop you like a bad date if you mess with their checking account.

The Associated Press commissioned GfK Roper Public Affairs to conduct a survey recently on these changes.  In it, consumers were asked what they would consider doing if their bank started charging for the use of their debit card.

The results are a confirmation of the law of unintended consequences –  61 percent of respondents said they will switch to another form of payment if their bank or credit union begins charging a $3 monthly fee for debit card use.  The number jumps to 66 percent for a $5 fee and rockets to 81 percent if the fee is $7 per month.

The reason the banks are testing these fees is to see what kind of backlash they will get.  We, as consumers, need to let them know.