By Peter Schroeder - 09/29/11 07:54 PM EDT
Bank of America announced Thursday it will charge its debit card users a $5 monthly fee beginning in early 2012, provoking fury from a senior Democrat.
The bank, the largest in the nation by assets, blamed its decision on the so-called Durbin Amendment, a provision of the Dodd-Frank financial reform law put into place by Democrats in 2010 that set limits on the fees banks could charge retailers for swiping their debit cards.
Bank of America said the economics of debit cards has been altered by the fee limit, which will take effect Oct. 1. Banks say the fees go to pay indirect costs of providing debit cards, such as fraud and overdraft protection.
“It seems that old habits die hard for Bank of America,” Durbin said in response to the new policy. “After years of raking in excess profits off an unfair and anti-competitive interchange system, Bank of America is trying to find new ways to pad their profits by sticking it to its customers.
“It’s overt, unfair and I hope their customers have the final say.”
The fight over so-called swipe fees was one of the most contentious on Capitol Hill this year, as banks and retailers duked it out over billions of dollars in revenue. The Federal Reserve, charged with setting the cap, limited fees to an average of 24 cents per transaction — about half what the industry charged prior to the limits, but a major step up from the 7-to-12-cent cap it originally proposed.
Now, banks are on the hunt for ways to make up for that lost revenue — others have also floated or announced additional fees, or have opted to trim benefits for debit card holders.
But retailers, and Durbin, argue that banks were making out like bandits under the original arrangement, as the fees charged covered several times more than the cost of processing the debit transaction.
“These hidden fees were designed to boost big-bank profits by charging small businesses and merchants every time a debit card was swiped,” Durbin said. “And profit they did.”