This Wednesday in Washington, district court judge Richard J. Leon ruled that in working out the details of the fee cap proposed to reduce the amount of revenue a bank can charge for use of its debit card linked to bank accounts, that the Fed had run “completely afoul of the text, design and purpose” of Congress’ intent, according to the New York Times.
The problems are many for the large financial institutions and big banks that had been thought too big to fail. Citigroup’s shares were priced at 99 cents not too long ago. Many banks received aid from TARP, a publically funded bailout scheme to stabilize the banking system. Currently the Fed is continuing its Quantitative Easing program, which is monetary policy used by central banks to stimulate the economy. MIT and Harvard economist Ben Bernanke is the current chairman of the Federal Reserve, and he takes a lot of criticism from every angle on his unconventional policy. Though there are many details in this policy from buying financial assets from banks, to buying short term government bonds, the basic effect is to increase the money supply and stimulate growth. Since the financial crisis, many banks had to write down a lot of debt, and some banks like Wachovia became insolvent. Other institutions, like Solomon brothers also failed, and certain institutions merged. The merger of Merrill Lynch and BOA is only one example of the aftermath of the system shock that shook banks. Legislation also changed, with the addition of the Volcker Rule section of the Dodd-Frank Wall Street Reform Act that bans commercial banks from proprietary trading.
As banks were trading to make profits, and the Volcker Rule took away those profits, now it seems obvious that higher debit card fees would be levied to make up for the financial short fall and lost revenues. As part of the banking system overhaul in the aftermath of the financial crisis, congress intended to limit the fee structure of banks and allowed the Federal Reserve to finalize those limits. Barbara Hagenbaugh, a spokeswoman for the Fed commented, “we are reviewing the judge’s opinion.” Senator Durbin of Illinois, who helped write the legislation that would cap the fees commented” today’s decision…is a victory for consumers and will lead to lower interchange rates for billions of debit card transactions each year.” Banks are pitted against retailers and say that retailers have pushed for lower fees to “pad their own bottom lines.”
The president of the American bankers Association commented ” it was and still is all about trying to help retailers increase profit margins while providing no real benefit to consumers.” Although retailers may claim that they will pass along those savings to customers, it is absolutely not guaranteed.