NEW YORK (
) -- It's time for the politicians to back off from their drive-by bank bashing and let the free market operate.
Recent statements by President Obama and Senator Dick Durbin (D-Ill.) following
Bank of America's
decision to begin charging a
, have gotten out of hand.
Senator Dick Durbin
Senator Durbin's statement on the Senate floor that Bank of America's customers should "vote with your feet, get the heck out of that bank," is a reckless statement for someone in his position. It's one thing to introduce or support legislation designed to protect consumers from confusing and expensive fees, but quite another to single out one company that is charging a fully disclosed fee to provide a service.
Maybe the Senator's problem is with capitalism itself.
President Obama was more reasonable and measured in his negative response to Bank of America's plan for the fees:
In an ABC interview on Monday, the president said the banks "don't have some inherent right just to, you know, get a certain amount of profit, if your customers are being mistreated."
But are they being mistreated? Bank of America's coming $5 monthly service charge for customers using their debit cards to make purchases (they won't be charged for making cash withdrawals at Bank of America ATMs) is not some tricky "hidden fee." The fee has been
, in advance, and is easy to avoid.
Even the president admits that the market may solve the "problem," of the new fee hoping that many banks will determine that "this is actually not good business practice."
The banks have only themselves to blame for the legislation that led to curbs on practices leading to excessive fees.
The Credit Card Accountability Responsibility and Disclosure Act of 2009 or CARD Act, put an end to several abusive practices leading to some exorbitant fees, including "universal default," double-cycle billing, mailing bills only two weeks before payment was due, playing games and causing additional late fees by positing received payments the following day, etc. This was good, since the lenders were being tricky.
The changes to Regulation E to requiring banks only to provide expensive debit card overdraft protection to customers who opted-in for the service, also made sense, because the consumer really didn't know the extent of the fees the might face, when factoring-in the possibility of multiple overdraft fees for small purchases and additional daily fees for having an account balance below zero.
But this time it's different. Rather than whine about the new fee at Bank of America and the monthly checking account fees being rolled out by other large banks, including
, let's look on the bright side:
- You know about the fees in advance. And the $5 fee for using a debit card for purchases is easy to avoid, if you begin using cash again, or switch to using a credit card for retail purchases. At least until you get hit with a monthly credit card fee.
- You can shop around. Many large banks, such as TD Bank (TD) - Get Report, for example, have no minimum balance to avoid a monthly checking account fee, don't require direct deposit to avoid a monthly checking account fee, and don't charge a monthly fee to use your debit card to make purchases. Many community banks do the same.
- You can consider a radical switch. As more banks add fees, consider a credit union. You might earn higher rates on savings accounts and are less likely to be slapped with fees by a non-profit organization. The price you will pay is to give up the convenience of having access to scores of ATMs. Maybe changing your habits back to visiting your financial institution once in a while to withdraw some cash, isn't such a bad thing. While credit card deposits aren't insured by the Federal Deposit Insurance Corp., they are similarly insured by the National Credit Union Administration.
- Ask your broker. Through its Schwab Bank subsidiary, Charles Schwab (SCHW) - Get Report is offering FDIC-insured checking accounts with no minimum balance, no monthly fees of any kind and free checks. A Visa debit card is included, which you can use to make purchase for no additional charge, and if you use the Visa debit card to withdraw cash at another bank's ATM, Schwab will reimburse you for the other Bank's ATM fee. Schwab reserves the right to stop offering the rebates. As icing on the cake, the Schwab checking account pays interest.
So the free market already offers several solutions for customers who wish to avoid Bank of America's new $5 monthly fee for using a debit card to make purchases, and solutions for customers who wish to avoid paying other monthly service fees.
With the largest banks already facing what one analyst calls a "perfect storm" of problems, with weak loan demand and the capital markets in turmoil, it's time for the politicians to back-off from their automatic-pilot bank-bashing, and redirect their energies into areas that would benefit the U.S. economy.
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Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.