Balloon Juice ? Changing Business Model

by John Cole

Wonder what the fallout here will be:

Bank of America, the nation?s biggest bank, said on Thursday that it planned to start charging customers a $5 monthly fee when they used their debit cards for purchases. It was just one of several new charges expected to hit consumers as new regulations crimp banks? profits.

Wells Fargo and Chase are testing $3 monthly debit card fees. Regions Financial, based in Birmingham, Ala., plans to start charging a $4 fee next month, while SunTrust, another regional powerhouse, is charging a $5 fee.

The round of new charges stems from a rule, which takes effect on Saturday, that limits the fees that banks can levy on merchants every time a consumer uses a debit card to make a purchase. The rule, known as the Durbin amendment, after its sponsor Senator Richard J. Durbin, is a crucial part of the Dodd-Frank financial overhaul law.

Until now, the fees have been 44 cents a transaction, on average. The Federal Reserve in June agreed to cut the fees to a maximum of about 24 cents. While the fee amounts to pennies per swipe, it rapidly adds up across millions of transactions. The new limit is expected to cost the banks about $6.6 billion in revenue a year, beginning in 2012, according to Javelin Strategy and Research. That comes on top of another loss, of $5.6 billion, from new rules restricting overdraft fees, which went into effect in July 2010.

And even though retailer groups had argued that lower fees were important to keep prices in check, consumers were not likely to see substantial savings. In fact, they are simply going to end up paying from a different pot of money.

My gut instinct is to think that the first thing this will do is drive down unplanned consumption by smart consumers. Certainly, there will be a large group of people who won?t care, and will just use their debit card anyway, but I?m betting a bunch of savvy people will start using cash for purchases more frequently. The question then is how will the banks figure out how to screw them? Will they get rid of free atm withdrawals for customers? Start charging a fee every time you visit a teller?

Because one thing we know is true- they will find a way to screw you. There are too many bonuses and too much executive pay at stake for them to simply re-adjust their business model to live with slightly less profit.

September 30, 2011 10:06 am Posted?in:?Domestic Affairs, Free Markets Solve Everything ?258 Comments

Source: http://www.balloon-juice.com/2011/09/30/changing-business-model/

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