October 14, 2011 | Commentary on Regulation
Whatever one's opinion about escalating bank fees, President Barack Obama's very public tongue-lashing of Bank of America was painfully revealing. Not only did he express a distaste for profits, he confirmed the fears of the financial services industry that he intends for his pet consumer protection agency to persecute bankers.
The president blasted the bank for initiating a $5 debit card fee to offset an anticipated $2 billion in annual revenue losses stemming from a provision of the Dodd-Frank financial regulation statute. The so-called Durbin Amendment (a la Sen. Dick Durban, D-Ill.) limits the fees that financial institutions may charge retailers to process debit card purchases — resulting in a projected loss to banks of $6 billion to $10 billion annually.
Bank of America is hardly alone in trying to make up for its anticipated shortfall. Wells Fargo expects to lose $1 billion, prompting it to adopt a $3 fee for debit cards in some areas. JPMorgan Chase is also rolling out new fees, as is Citibank. Smaller banks are following suit.
Unfortunately for BoA, the bank announced its new fee just 72 hours before the president participated in a live interview streamed on ABC.com and Yahoo!News.com. Asked by host George Stephanopolos whether he could "stop" new bank fees, Obama replied:
"(T)his is exactly why we need this consumer finance protection bureau that we set up that is ready to go ... (T)his is exactly why we need somebody who's sole job it is to prevent this kind of stuff from happening. ... (Y)ou can stop it because it — if you — if you say to the banks, 'You don't have some inherent right just to, you know, get a certain amount of profit. If your customers are being mistreated.'"
A more judicious chief executive would likely have suggested that bank customers — not government — should punish (or reward) Bank of America for changes to its fee structure. Instead, the president lambasted bank executives for attempting to offset revenue losses, as if profit-making is inherently immoral or corrupt.
But that's rhetoric. Far more troubling is Obama's threat to sic the Consumer Financial Protection Bureau on bankers who have broken no law. And that is precisely what critics predicted would happen. After all, this is a regulatory agency with unparalleled powers and virtually no accountability. It is an opportune time, therefore, to remedy the bureau's structural flaws.
While some Americans may take comfort from the president's outrage on their behalf, the truth is that financial institutions across the country are instituting a slew of new fees as a direct consequence of the president's own policies and the ill-advised actions of Congress.
Initially, the price controls must have been seen as an easy way to score populist points. In the wake of the 2008 bailouts, big banks became political lepers, so why not bleed them a bit. But it should come as no surprise to Obama or anyone else that consumers will end up as the biggest losers. After all, that's been the consistent result throughout 4,000 years of disastrous experience with government price controls.
Diane Katz is a research fellow in regulatory policy in the Roe Institute for Economic Policy Studies at The Heritage Foundation.
First moved on the McClatchy Tribune News Wire service