Believe it or not, cash and the occasional check used to the primary method of payment for most people. That practice has long since gone by the wayside with the advent of plastic cards.

Credit Cards

Starting with credit cards, many consumers opted to carry a single, convenient form of payment rather than wads of cash. Credit cards became particularly useful for large purchases due to their instant authorization and other security features. Now, debit cards have largely supplanted credit cards as the primary form of payment. Debit cards, which are essentially a credit card linked to and limited by your checking account, offer many of the same benefits, without a periodic fee or monthly interest charge. Well, they used to at least.

Bank of America

Bank of America shocked customers across the country last week when it announced its plans to begin charging a five-dollar monthly fee for all but a select few of its debit cardholders. That’s $60 per year, which amounts to a fabulous champagne brunch for two. Debit cards used to be free, didn’t they?

Bank of America is not alone in this endeavor. Indeed, Wells Fargo is testing a $3 monthly fee in select markets and JP Morgan Chase has likewise indicated its intentions to impose a fee for debit card usage. As I’ve stated in a previous post, this is kin to how the major airlines reacted to high fuel costs by imposing a baggage fee.

This is wrong, isn’t it? Didn’t we just bail all these big banks out and now they want to charge us for something we already enjoyed for free? Well, that depends on with whom you are talking to.

Durbin Tax

The Durbin Amendment, which was initially passed as a pro-consumer bill, is a provision under the recently passed Dodd-Frank legislation, took out a significant chunk of banking fees by limiting the amount banks can charge merchants for debit card transactions. In fact, some analysts estimate that the major US banks (the legislation only applies to banks with $10 billion or more in assets) will lose $8-14 billion in annual revenue under the Durbin Amendment. Given this unintended effect on the consumer, the $5 fee, has resulted in the Durbin Amendment being coined the “Durbin Tax.”

Why didn’t these banks find a more creative way to recoup their losses through the merchant or from larger, commercial clients? The answer is simple, the consumer has long enjoyed the benefits of free banking and imposing a relatively small surcharge on this large pool of customers is easy for the banks. Moreover, they don’t have to worry about being paid on time; the fees come straight out of your account.

What To Do As A Consumer

If you’re a consumer, the resolution is simple: shop around for a smaller bank that doesn’t impose these fees. Well, this makes rational sense; however, studies show that many customers when historically faced with similar situations stay with their current institution. It’s seen as too much of a hassle to switch. Take ATM fees as the leading example. When banks decided to hike their withdrawal fees, customers complained, but few did anything about it. ATM fees have since become a fact of life. Unfortunately, debit card fees may follow a similar fate. Or will they?

Having invented the clever moniker, “Durbin Tax” to explain the imposition of these debit card fees may be the best way to either get rid of the legislation or make banks reconsider their strategy. People hate taxes almost as much as the press loves controversy and while these debit card charges are not a tax in the technical sense (it’s a fee), it nonetheless makes for a great story.