Posted by It’s an odd-sounding question, but, if you use a debit card, a very important one. I bring this up as The Huffington Post recently published an article about the political battle over the fees banks charge stores when customers use their credit and debit cards. While the article–and much of the ensuing commentary–has focused on the spectacle of Congress being available to the highest bidder (you needed this issue to tell you that?), it missed the far more important issue: how much should it cost to use money and whom do you ending paying to do so?
Because focusing on what one Senator called “The big greedy bastards against the big greedy bastards; the big greedy bastards against the little greedy bastards; and some cases even the other little greedy bastards against the other little greedy bastards” misses the point–you’re paying too much to access your money. RJ Eskow refers to these fees as an “invisible tax“:
Think of the debit fee as an invisible, nationwide Federal sales tax of 1% to 2% on everything you buy with a card – except that you never got to vote on it, never heard a debate about it, and may not have even known it existed before it came up in the debate over bank reform.
Yves Smith calls this “pure profit“:
Debit card charges are as close as you get to pure profit in banking once you get the system in place. The service runs over existing charge card equipment and infrastructure on the merchant end, and is integrated into existing bank balance reporting on the consumer end. For retailers, which are often low margin businesses, the various bank payment service charges are a very large cost. And the only serious study done on the impact of card charges (both credit and debit) on consumers concluded that the average household pays $230 a year. This is a significant hidden tax on lower-income households.
But most of the discussion is over how large the fees should be. That’s important, but ignores the larger issue: the de facto privatization of our monetary system. While it doesn’t seem obvious, when you use cash there are ‘fees’ involved–the cost of supporting the U.S. Treasury operations (printing the money, shipping the money, preventing counterfeiting, and so on). To put this another way, the U.S. government could decide to abolish all paper and metal currency, and make all of our accounts electronic (I’m not arguing this would be a good thing, but bear with me). To cover the expenses of this system, either merchants or cardholders (that would be you and me) could pay fees–in this case, taxes–to support the currency infrastructure.
As more and more people shift towards electronic purchases–both debit cards and credit cards used as transactional credit (i.e., not as a loan paid back over time–paying off monthly in full)–private banks have a superb opportunity for what economists call ‘rent seeking’: charging you, either directly or indirectly, all those damn fees. Here’s what I mean:
Banks began issuing cash cards in the 1970s as a tactic to automate services and cut labor costs — more ATMs meant fewer bank tellers and check processing costs. When swipe machines were first introduced in stores, banks actually paid some merchants to accept debit cards. Later, swipes became free, and once debit cards had become ingrained in consumer culture, banks began charging merchants, and the costs keep going up.
They can charge merchants because many consumers would rather pay with a card than with cash (and that’s before we get to online shopping). So what would I do?
In the Mad Biologist’s utopia, replete with Economically Savvy Magic Ponies, the Fed would offer every adult resident the chance to open an FDIC-insured account that comes with a debit card. It would have very low fees (to put this in perspective, the net profit from user fees for banks every month is $1.35 billion from debit cards alone)–after all, as is the case with physical cash, we have a vested interest in keeping the infrastructure costs as low as we can (keeping in mind the need for security etc.).
But with the ascendancy of the batshitloonitarian right, that’s not even an option right now. So here’s what I would propose instead:
I would make fees incredibly low on debit cards and comparable to cash costs (and not based on the size of transaction–it’s no more expensive to process a five dollar transaction than a five hundred dollar one), since that’s just you accessing your own money that you’ve deposited (and ones and zeros in a computer should have less overhead than moving around pieces of paper). I would also prevent overdrafts–again, this should be no different in kind than using paper checks.
Credit cards would cost more-after all, you are technically taking out a loan, even if, like I often do, you are using the credit card as transactional credit. It is a loan, and the bank is taking a risk (although usurious practices should be banned).
What’s seems to have gone missing in the whole debate is the notion that you and I shouldn’t have to pay 1-2% of every purchase to the bank for the privilege of withdrawing our money from a checking account–even in the pre-free checking era shipping pieces of paper around, it didn’t cost that much.
Of course, you and I can’t hire an army of lobbyists. Might be relevant to that conspicuous absence.
April 29, 2011
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