Occasionally banks send letters to their customers explaining changes in their credit- and debit-card agreements. This is not one of those letters. It's how one of those letters would read if banks were a distant and annoying cousin whom you never hear from except when he needs a favor.
Dear Valued Customer,
How are you doing? I'm great. Of course, the recession took its toll, and I lost some of my nearest and dearest friends—little banks that made a lot of mortgage loans, bigger banks that spliced and diced a lot of mortgage loans. But I'm a big, big bank, and my profits are back to all-time highs, so I'm feeling pretty good.
All the same, I'm worried. I feel bad for even bothering you about this—there are a million other things I'd love to talk to you about—but it's kind of urgent. Washington is changing some rules about your debit card that are going to end up turning out really badly for me—I mean you!—and you could really help me out by writing to your member of Congress. Like, today.
You might have seen some of my warnings about how this issue threatens you and your family. I put up posters in the subway and made my own Web site. Come next month, the Federal Reserve is going to have to write new rules regarding debit interchange fees, those little sums that I charge retailers when they let customers pay with a debit card, to pay for the infrastructure to keep the machines up and running and to help cover the cost of fraudulent charges. I won't bother you with the details.
A provision inserted in the big Dodd-Frank financial reform law that passed last year bill slashed those fees. The rule lets smaller banks, those with less than $10 billion floating around, continue to charge whatever they want. But my big buddies and I got discriminated against. I had been charging merchants about 44 cents per transaction. Now, I can only charge 12 cents. That means my friends and I are going to lose out on about $14 billion in fees per year—fees that we took from your local grocery store, gas station, and department store … you name it. Now I'm worried I'm going to have to charge those fees to you.
So if you want to write that letter to Congress, I've got some language for you to use. No fee, either! (That was a joke, OK?) "The only beneficiaries of this harmful rule are retailers, who will take home an additional $14 billion in profits," I think you should say. "The rule does not require that retailers pass along even one penny of their savings to customers. Meanwhile, banks, forced to lose money on debit interchange transactions, will be forced to compensate by increasing fees for deposit customers." Sounds pretty good, huh?
Now, I can't tell you what it costs me to run each debit transaction—I have to keep that information very, very secret. But like I said before, it's in the neighborhood of 44 cents, not the 12 cents the government thinks it is, I swear. And I can't tell you how I work out my fees with retailers. That's private too.
The only thing you need to understand is that, if the Fed follows through, I am not going to have any choice except to raise your fees. That means no more free checking accounts (though, to be totally honest, they've been on their way out since Congress stopped us from charging $35 per overdraft without asking first). I might also have to limit your debit card transactions—maybe stopping you from charging more than $50 per transaction on your card. I'm sorry! Again, I have no choice. I need that revenue from fees, you have to understand.
Now, you've probably been hearing about me from some people who say I'm not being honest with you. Maybe they say this change will be good for small businesses, or that I don't need to pass on these costs to you, or that this is really about my revenue targets, and blah, blah, blah. Let me tell you, my friend: This is about you and me. Just the two of us.
I'm sure you'll hear some sob story from some little businesses. "Oh, but those fees are so high, I lose money every time I sell a newspaper!" they'll say. "And if I try to pass these big fees on to my customers, I could go out of business!" To which I say: Boo hoo, guys. Toughen up. Besides, the companies that are going to make out like bandits are the ones that process the most transactions—like Wal-Mart. Maybe, just maybe, we have already worked out an interchange deal with big stores like that. (Like I said, I can't tell you about that. Sorry!) But one way or another, definitely do not listen to any local small-business types. Listen to me.
You might also hear some four-eyed economist folks pointing out that our interchange fees in the United States are the highest in the industrialized world, even though we banks provide similar services. Whatever. This is the land of the free, and we charge what we can charge. And there will be some other nerds moaning about how our fee structures are regressive—giving big benefits to rich families with our fancier signature debit cards, and taxing poor ones to do it. That is beside the point.
All you need to understand is this: If this thing goes through, we are going to have to charge you higher fees. So when you lose your free checking account unless you've got $50,000 in the bank, blame your member of Congress and your local businessperson—not me.
P.S. Next time you come in, you want to apply for a rewards card?