The Official Merchant Services Blog has learned of the latest twist in the ongoing saga about the Durbin Amendment. The legislation, which was tacked onto the Dodd-Frank Wall Street Reform and Consumer Protection Act, caps the fees banks can charge for the use of debit cards. It went into effect on October 1, 2011. Host Merchant Services provided an extensive analysis of the legislation months ago, and The Official Merchant Services Blog ran a series leading up to October 1st titled Countdown to Durbin.
Since then the frenzy over the legislation has sky rocketed. The Occupy Wall Street movement embraced Bank of America as a target for its protests. Congressmen have suggested a Department of Justice investigation into big banks for antitrust violations. And lawmakers have even suggested repealing the amendment and going back to square one.
But Florida state Lawmakers have, by far, come up with the boldest response — a bill that would prohibit banks, including Bank of America, from charging customers fees to use debit cards.
A Miami Herald article had this to say: “A House Democrat disgusted by big banks and their new monthly fees for using debit cards proposed on Monday to make those charges illegal for Florida customers.
It may be a dream for angry consumers, but it begs a few questions. The biggest being, can it even happen?
Lake Worth Rep. Jeff Clemens says yes. His bill would prevent banks from imposing a dormancy fee or service fee on customers using debit cards.”
This is a fascinating suggestion on how to deal with the issue. Banks have been putting forth the idea that these fees are their way of dealing with the huge losses the debit fee cap would bring them. Going from 44 cents a transaction to 24 cents a transaction was going to bring about an overall dearth of billions of dollars for the industry. And banks were very up front about how they would deal with this restriction: They would shift it from the merchants who were having to pay these fees for each swipe, to the consumers — their customers — with new fees for debit card use.
The backlash for these consumer targeted fees has been extremely negative, with Bank of America getting much of the spotlight due to their $5 per month fee that they say will take effect in January 2012.
Key Points about the Durbin Amendment
So one Florida lawmaker has decided to head that off at the pass, and restrict banks’ ability to do that at all, at least in the state of Florida. Whether this happens or not, this move does at least demonstrate a few key things about the Durbin Amendment:
- It’s very design left a loophole for banks to shift the fees. Which means its ability to reform what it wanted to reform was hampered at the very stage of its inception.
- Florida Lawmakers might only be closing one of the holes in the law if they implement this, and not even very effectively, but they at least set an example as to how lawmakers should have approached the idea of reform in the first place.
- Instead of repealing the amendment, or investigating banks with the Department of Justice, the Florida Lawmakers knee-jerk reactionary bill at least tries to work with the bill.
The ability of the law to actually work is somewhat in doubt. Clemens cited in the article: “the 2009 U.S. Supreme Court case Cuomo vs. Clearing House Association, in which the court decided federal law did not preempt states from enforcing their own laws in cases against national banks.”
But Anthony DiMarco, a spokesperson for the Florida Bankers Association responded in the article with: “the state cannot impose the law because of the country’s longstanding dual banking system. State banks comply with state law and a few national regulations, he said, and national banks answer mostly to federal regulators like the FDIC. Big banks are allowed to charge fees under federal law.”
In the end, though, all this bill would end up doing is force banks, in Florida at least, to simply shift to another tactic. As the article states: “Trish Wexler, Electronic Payments Coalition spokeswoman [said that if] Clemens’ idea is law, “consumers are either going to lose their debit cards or they’re going to pay another way.“
So essentially this story makes for an engaging mental exercise in the legislative process and a very fascinating turn in the Durbin Amendment’s aftermath. The bill still has to pass for the legality of it to become an issue. Then the legality of it has to be addressed. Then the banks’ response has to happen. But it’s nice to see a fresh take on how to deal with financial reform get offered up. Maybe it’ll get the federal government off the track of a Justice Department investigation and on the track of reforming their own reforms?
