Friday, March 4, 2011, 8:25 AM

Not all fees are equal

Posted by: Chris Jones




In the world of consumer finance, not all fees are equal. Overdraft fees, payday loan fees, credit card fees, mortgage related fees and debit card fees are just a small handful of the types of fees that customers have historically paid. And, they are all considered relatively soft targets for law makers and regulators because, let's face it, no one likes paying fees. The Consumer Financial Protection Bureau is already taking aim at the "fee" related profit centers, and it doesn't even have oversight power yet.



However, lest we forget, major financial players are not the only ones issuing debit cards or charging related fees. Their availability is now ubiquitous, which means that curbing fees will hurt mid-market players like credit unions and community banks. Turns out though, even mid-market players have lobbying help. Thusly, as reported here, yesterday, William Cheney of the Credit Union National Association, appeared and testified before Congress regarding the impact that new Dodd-Frank regulations, including reductions in debit card fees, would have on what was characterized as a segment of the industry that serves 92 million Americans, and that had little to do with the financial crisis. A colleague, Gerber Federal Credit Union President John Buckley Jr., also testified. He explained that the debit card fee reductions would result in an annual $210,000 loss for Gerber Federal. Whether and to what extent $210,000 annually means more to Gerber Federal than repeated $2 or $3 debit card fee means to the average American is unclear.


Regardless, it is beyond reasonable dispute providing the convenience of debit cards is not free. There are associated costs, and why exactly is it wrong for provision of such a service to be a profit center? Customers are not forced to take or use debit cards, and certainly are not forced to withdraw cash from other bank's ATM machines. Can fees be high as a percentage of withdrawal? Sure. Depending upon the size of the withdrawal. Then again, there is no fee if one just goes to the bank, which was the only option until the 1990s.


Now, we aren't trying to pull a muscle racing to the defense of credit unions, however, it may be worthwhile to remember that debit cards are not a right. They are a service that customers choose to use. There are less expensive alternatives available. And, there is nothing complex, hidden, deceptive or secret about most or all of the fees attendant to the convenience of debit cards. When we are at ATM machines, we are forced to manually "accept" them. If we choose to punch the "yes" button instead of the "no" button, do we retain the right to later complain or demand that they be reduced?


There are many arenas within consumer finance in which there is a demonstrated need for protection, and we have a new 1200 person agency cranking itself up to do just that. But, should debit card fees really be a focus?


Heck, if a customer doesn't like debit card fees, then she can always go buy checks....oh, wait...




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