With the uproar over Bank of America introducing $5 monthly fees for the privilege of using their debit cards, there is an angle to this that everyone is missing – the law of unintended consequences. Wizbang’s Jay Tea blogged about this very point over the weekend, and I want to take his point a bit further. The law of unintended consequences is going to be one of the chapters in my ongoing (which will end up being nine or ten parts) Economics for Politicians series, but this particular incident warranted its own post.
First let’s step back a minute to the 1990’s when ATM use took off (causing mass unemployment) and they started popping up everywhere. No longer restricted to getting money from your bank, you could get them from any bank’s ATM. In fact, cash machines started popping up in places we would never expect – in bank’s branches at supermarkets, in shopping malls, and convenience stores. But like everything in life, there was a cost. If you used an ATM not belonging to your bank you got charged a fee not only by the bank owning the machine, but by your bank as well. People grumbled about them and still do, but we pay those fees for the convenience. I always thought the fees were ridiculous and thought that something should be done about them by lawmakers.
In the late 1990’s Investor’s Business Daily was required reading a class I was taking, and I came across an article addressing this gripe regarding ATM’s. The article made an excellent point that one of the reasons that ATM’s popped up everywhere was because banks could charge these fees. Banks are in business to make money, and allowing them to profit from these machines is what led these machines to pop up like daisies in so many then uncommon locations. The article also made an excellent point regarding anyone who still felt cheated by these fees – you could still use your bank’s ATM at no charge 24/7. Or for that matter, look at what options were available before the rise of the ATM. I came of age where my working career began just as ATM’s were emerging. I still remember the lines at the bank on Thursdays and Fridays to deposit paychecks and to withdraw money before the bank closed for the weekend. Or if your bank had weekend hours, it was a short window on Saturday mornings that meant more long lines. The ATM changed all of that. Now you had 24/7 access to your money, and the clincher for me was the fact that nothing that was available to you before was taken away. You still could see your neighborhood teller during business hours (with much shorter lines), and now you also had access to a 24/7 machine at no charge to you and access to vastly more if you were willing to pay a fee. Ban the ATM fees? Guess what will start disappearing in no time flat.
So now the Durbin Amendment of the Dodd-Frank bill now has banks making consumers pay to use their debit card networks because they are no longer allowed to cover the cost with merchant fees? Guess who you should be blaming. Are you wondering why banks are hesitant to loan money when Congress has seen fit to add so much regulation to "protect" consumers and make it easier for them to walk away from repaying their loans? You could blame Bank of America of course. But if you’re blaming them you’re probably already showing your outrage up on Wall Street. And as usual, your rage is misplaced – if you’re unhappy with B of A’s actions you should drive a few hours down I-95 and start walking on Capitol Hill.