Zywicki in WSJ: Durbin Amendment Transforms Banking Landscape

In a Wall Street Journal op-ed, Professor Todd Zywicki criticized the Durbin amendment to the Dodd-Frank financial reform legislation, saying the government price controls on debit card interchange fees (which card issuers charge to merchants) scheduled to go into effect this weekend are already transforming the banking landscape.

 “Conceived of as a narrow special-interest giveaway to large retailers, the Durbin amendment will have long-term consequences for the consumer banking system. Wealthier consumers will be able to avoid the pinch of higher banking fees by increasing their use of credit cards. Many low-income consumers will not. Banking will become less innovative and consumer-friendly,” said Zywicki, who also cited the closure of numerous bank branches as an additional side effect of the legislation.

The Dick Durbin Bank Fees, The Wall Street Journal, September 29, 2011. By Todd Zywicki.

“Faced with a dramatic cut in revenues (estimated to be $6.6 billion by Javelin Strategy & Research, a global financial services consultancy), banks have already imposed new monthly maintenance fees—usually from $36 to $60 per year—on standard checking and debit-card accounts, as well as new or higher fees on particular bank services. While wealthier consumers have avoided many of these new fees—for example, by maintaining a sufficiently high minimum balance—a Bankrate survey released this week reported that only 45% of traditional checking accounts are free, down from 75% in two years.

“Some consumers who previously banked for free will be unable or unwilling to pay these fees merely for the privilege of a bank account. As many as one million individuals will drop out of the mainstream banking system and turn to check cashers, pawn shops and high-fee prepaid cards, according to an estimate earlier this year by economists David Evans, Robert Litan and Richard Schmalensee. (Their study was supported by banks.)”