Good thing to see cost of convenience

By DAVID MOON, Moon Capital Management, LLC
October 9, 2011

When Bank of America recently announced that it would begin charging its customers $5 a month for the privilege of accessing their own money via debit card, consumers immediately and understandably protested. Charging a fee for debit cards would be like making people pay for their checks.

Wait; that’s a bad example.

It’s not just Bank of America. SunTrust and Regions now charge for debit cards on certain types of checking accounts, as do Chase and Wells Fargo in some markets.

Banks blame the Dodd-Frank Wall Street Reform and Consumer Protection Act for the new fees. As of October 1, federal limits were placed on the amount a bank can charge a merchant retailer for processing a debit or credit card transaction.

Lost merchant processing fees are estimated to total $6.6 billion from the new caps.

To replace that revenue, some banks are now simply passing a previously hidden fee onto consumers – consumers who have been unknowingly paying the fee all along. When you swipe your debit card at Wal-mart or Kroger, those businesses pay their bank to process the transaction, just like it pays for salaries and inventory.

In profitable companies, all of those costs are ultimately born by customers. Customers will now see the cost of convenience.

This is a good thing.

Because of the organizational structure of my employer, I don’t have taxes withheld from my paycheck. Once each quarter I write a check to the US Treasury for the previous three months’ taxes. Everybody ought to have to do that. Not that I need reminding, but writing that check forces me to be aware of the amount of taxes I pay.

Paying for my debit card will likewise force me to realize the cost of convenience. It also gives me the opportunity to forego that convenience, if I so choose, and return to writing checks or even carrying old fashion cash.

Everything has a cost, whether you see it or not.

Senator Dick Durban (D-Ill) argues that the cap on merchant fees creates opportunity for small banks to capture customers from the large banks that implement the debit card fees. Durban is right. But is it the role of the federal government to decide which banks should have specific competitive advantages – especially when the government has already declared some banks (including Bank of America) too big too fail?

Once banks took government bailout money – even if begrudgingly – they were in bed with the mob. They lost control of what they could do and, more critically, what they couldn’t do.

President Obama made this clear early last week when he said “banks don’t have some inherent right just to get a certain amount of profit.”

Perhaps. But we all do have an inherent right to pursue a certain amount of profit.

When asked about Bank of America’s decision to implement the debit card fees, JPMorgan Chase CEO Jamie Dimon was succinct and spot on. “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.”

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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