Durbin presses Wells Fargo on new fees amid rising profits

Democratic Sen. Dick Durbin is casting a wider net of criticism for banks introducing new debit card fees. 

The Illinois senator sent a letter to Wells Fargo chief John Stumpf on Wednesday, asking for an explanation as to why it is considering adding new fees for debit cards following the announcement of the bank's 21 percent increase in third-quarter profits on Tuesday. 

"Your spokesperson’s claim that Wells Fargo needs to charge all its customers an additional monthly fee of more than $3 in order to make up the 'cost' of providing debit cards simply does not add up," Durbin wrote. "Instead of making up costs, your new consumer fee appears to be a plain attempt to increase your profits, even though your bank just reported third-quarter profits that hit a record high."

The new fee, currently being tested by Wells Fargo in five states, is similar to the fee Bank of America announced following the Oct. 1 start of the Federal Reserve's new policy on swipe fees, which cuts the amount banks can collect per transaction to an average of 24 cents from 44 cents.  

The policy change was pursued by Durbin as part of the Dodd-Frank financial reform law, and banks have heavily criticized the move. 

“I know that you have consistently opposed swipe fee reform, stating in your last annual shareholder letter that these reforms ‘make no sense’ and ‘distort our market-based, free-enterprise economy,’ ” Durbin wrote. 

“It is certainly surprising that your bank would pursue this fee strategy in light of the consumer reaction that has been prompted by Bank of America’s recent imposition of a monthly debit fee on its customers,” he said. “If you were hoping that your new fee would go unnoticed, it has not.” 

Durbin charged that banks didn't earn the fees by "bettering your competitors in a free market," but instead "made this lucrative revenue stream because the Visa and MasterCard duopoly fixed the same high swipe fee rates for your bank that they did for every other bank, thus immunizing this revenue stream from competitive pressure and enabling fees to keep going up even as processing costs went down."

"I also recognize that banks like yours are upset at the prospect of losing some of the billions in annual debit interchange fees you received under the old unregulated swipe fee system," he wrote. 

Some of the nation's largest banks are adding or testing $3 to $5 monthly fees for debit-card use, following the decrease in swipe fees collected from vendors.

"It is disingenuous for banks to claim they are somehow entitled to make up reductions to a revenue stream that they never would have received in the first place in a transparent and competitive market,” he wrote. 

Earlier this month, Durbin sent a similar letter to Bank of America, chastising the bank for its new fees.

According to payments industry analyst The Nilson Report from April, Wells Fargo debit cards were used in more than 5 billion purchase transactions in 2010 — multiplying this figure by the Fed’s 44 cent average results in an estimated $2.2 billion in debit interchange revenue for Wells Fargo in 2010.

That means Wells Fargo will make at least an estimated $1.22 billion in annual debit interchange revenue even with the decrease in swipe fees, with the amount exceeding any reasonable measure of the cost to Wells Fargo of conducting debit transactions, Durbin said. 

"It remains your prerogative to set your own fees that you charge to your own customers," he wrote. 

"However, it also remains appropriate for members of Congress to ensure that all bank fees are set in a transparent and competitive market environment so consumers can make informed choices and vote with their feet."