JOHN E. Sununu’s Oct. 17 op-ed column about debit card fees (“Pay it backward’’) got one thing right — that the issue is a mess. But it is one that is of the banks’ and card companies’ making.
For generations depositors accessed their bank accounts using checks or withdrawal slips. Checks costs banks about 40 cents each to process, but were honored at face value because banks more than covered the cost by using the deposits to issue revenue-generating loans.
Debit cards were introduced as ATM cards so that banks could reduce the expense of hiring tellers. Later, banks encouraged consumers to use the cards while shopping to free banks from the cost of handling paper checks. Initially there was no charge to merchants or consumers for this so-called service because it saved the banks billions of dollars annually.
But the banks soon began charging retailers swipe fees when customers used debit cards. These hidden swipe fees skyrocketed, eventually costing merchants and their customers nearly $20 billion a year.
Congress correctly became fed up with the expensive game banks were playing with the public. It directed the Federal Reserve to ensure that the fees the nation’s largest banks collected were “reasonable and proportional’’ to their actual cost of processing the transactions. The Fed found the cost was about 4 cents, but nonetheless agreed to allow about 21 cents to be charged - roughly half the previous average but still five times the actual cost.
Congress was right to crack down on banks for abusing the public with excessive fees. Just because those same banks dream up another bloated fee to replace it, isn’t reason to repeal a good law.
Jon B. HurstPresident Retailers Association of Massachusetts Boston