This article first appeared in the St. Louis Beacon, Oct. 4, 2011 - WASHINGTON - Fighting back against critics who are labeling new debit-card fees "Durbin fees," U.S. Sen. Dick Durbin, D-Ill., charged Tuesday that big banks are trying to gouge consumers and he urged local banks and credit unions to lure them away.
"Now is the time for bank customers to say enough is enough," Durbin said, urging consumers to switch accounts away from Bank of America or other banks that charge new fees for debit cards in response to a Durbin-sponsored provision of the Dodd-Frank financial oversight law that went into effect on Oct. 1.
In a letter sent Tuesday, Durbin urged Illinois community banks and credit unions to "seize this competitive opportunity" and "make crystal clear to these consumers the superior benefits and customer service that your institutions provide compared to the Wall Street giants."
Durbin's comments were aimed mainly at Bank of America, which announced last week that it would start charging customers $5 a month to use their debit cards. The bank blames the fee on a new regulation based on Durbin's amendment that limits the fees they can collect from retailers whenever customers swipe their debit cards. A spokesman said the new debit-card fee -- which a Chicago Tribune editorial dubbed the "Durbin fee" -- will only recoup a part of the billions in lost revenue.
Bank of America -- the nation's largest bank, measured by total deposits -- is "trying to capitalize on this change in the law by pointing a finger at me and then saying they are going to penalize their customers," Durbin told reporters Tuesday.
Durbin's amendment caps debit-card interchange rates for big banks (with more than $10 billion in assets) at 21 cents a transaction, plus one cent for issuers with an effective fraud prevention system, plus 0.05 percent of the volume of transaction. That is a significant reduction from the average of 44 cents that merchants paid per debit card purchase at the pre-Durbin rates.
In theory, retail businesses would benefit from the change, Durbin said, and pass along their savings to consumers. The National Retail Federation says swipe fees cost retailers and their customers nearly $50 billion a year. However, some "payment processor" firms have said they planned to keep the extra swipe proceeds.
This week, one of the biggest such payment processors -- Heartland Payment Systems -- said it planned to pass along the cost savings from the debit swipe fee cost directly to its merchants. The firm is labelling the savings as "Durbin dollars."
In the midst of the controversy, Durbin told reporters that his amendment "brought the light of day to what has been a hidden fee for many, many years. Retailers across America, large and small, have had to pay this fee and pass it along to consumers in higher prices." The Illinois senator said a Federal Reserve analysis found that the swipe fee for debit cards "is dramatically higher than the actual cost of the transaction to the issuing banks' credit card company."
Durbin, who is the Senate's second-ranking Democrat, has been criticized by some of the large banks and conservative media for sticking to his guns. This summer, he and others turned back an effort led by Sen. John Tester, D-Mont., to delay the new swipe-fee regulation. Lobbyists, big banks, retailers and card processing firms had battled over the Durbin amendment when it was approved last year.
Later this week, Durbin is scheduled to meet with the acting head of the new Consumer Financial Protection Bureau to discuss how best to let bank customers know their rights in dealing with banks that change their debit-card fees. And on Thursday, U.S. Rep. Brad Miller, D-N.C., proposed a bill to make it easier for consumers to move their money out of big banks.
Asked whether he felt threatened politically from the backlash from his provision, Durbin said: "If you look at my record, you know I've never backed off this kind of a fight."
He added: "There are a lot of reasons I ran for office, but protecting the profits and bottom lines of banks and credit card companies was not one of them."