JULY 23, 2012
If you happen to see an advertisement calling for repeal of something called “the Durbin amendment,” on the grounds that it provided an $8 billion windfall to retailers, don’t be misled into thinking the sponsor is some do-gooder consumer group. The sponsor (“The Electronic Payments Coalition”) is in fact a bunch of banks that don’t like new federally-imposed limits on “swipe fees” for retail transactions involving debit cards. Logically, swipe fees for debit cards should be a lot lower than swipe fees for credit cards, because when you use your credit card your bank is extending you credit, whereas when you use your debit card your bank is merely allowing you to spend money already sitting in your bank account. But before Sen. Dick Durbin, D.-Ill., inserted his fateful amendment into the Dodd-Frank financial reform bill, the fees were about the same. Consequently, retailers paid more than they should have to process debit-card transactions. This cost was passed on to you, dear reader, in the form of higher prices.
Now permissible swipe fees for debit transactions are much lower, and the banks are hopping mad about it (though a few have figured out alternative ways to charge you for spending your own money that may earn them even more cash). The larger story (which I told two years ago in Slate) is that for years banks have moved heaven and earth to make debit cards, which are supposed to be a thrift-minded alternative to credit cards, resemble credit cards, and to a surprising degree they’ve succeeded. If you’re a banker thrift is the enemy. Banks don’t want you to spend money that you have; they want you to spend money that you don’t have, so they can hit you with interest charges and/or fees. That’s why they had to be dragged kicking and screaming into arecent legal settlement allowing retailers to charge more for credit-card purchases than for other purchases.
None of this means banks are evil. But it does make them an untrustworthy source on this general subject.