Bureaucratic Blundering Behind Debit Fee Debacle and Health Premium Hikes

Financial Foolishness

Earlier this week, Bank of America announced plans to charge customers $5 each month on accounts that make at least one debit card purchase in a given month. The bank itself cited recent regulations as the primary reason for the increase.

According to the Wall Street Journal, a Bank of America spokeswoman announced that, “The economics of offering a debit card have changed with recent regulations.” Other banks like Wells Fargo, J.P. Morgan, Regions Financial Corp., and Sun Trust Banks are also experimenting with similar fees.

The regulation in question is the Durbin amendment to last year’s Dodd-Frank financial regulation overhaul legislation. The Durbin amendment caps the fees merchants pay for processing debit card purchases at 24 cents per transaction (vs. the current average of 44 cents). Javelin Strategy and Research estimates that this ill-considered rule could cost banks $6.6 billion annually.

It is probably no coincidence that Bank of America is also seeking to trim $1.5 billion in quarterly expenses, primarily through 30,000 layoffs between now and 2014. Bank of America publicly acknowledged that the cost of the Durbin rule alone would reduce the bank’s debit card fees by $475 million in just the fourth quarter of this year.

Nice work, Congress.

Incidentally, this bureaucratic blundering was also a bipartisan effort with 17 Republican Senators supporting the amendment.

What is amusing about this amendment is that it has absolutely nothing to do with regulating derivatives and other exotic financial instruments that had a big part in precipitating the crisis. What it does show is that when government steps in to “solve” one problem, it causes a host of new ones that ultimately harm consumers.

Healthcare Hooliganism

Heathcare insurance premiums increased an average of 9% this year, a dramatic jump compared to last year’s increase of 3%.  To all but the most wild-eyed of the progressive movement, this fact should be no surprise.

In fact, it was preordained.

When government passed a bill that added an additional 45 – 50 million uninsured Americans, required insurers to provide lots of additional free treatments and services, and guaranteed that people would have to spend very little out-of-pocket for their health decisions, costs were certain to rise.

One study by consultancy Aon Hewitt attributes 1.5% of premium bumps in 2011 to the reform law, which is fairly close to the White House’s own estimates. Of course, the law impacts some healthcare markets worse than others. For instance, estimates suggest that the bill will have resulted in a 5% premium increase in the individual market.

Passing excessive and ill-considered regulations have dire consequences, and the market is now beginning to see these impacts.

So much for jobs.

About Sean Patrick Hazlett

Finance executive, engineer, former military officer, and science fiction and horror writer. Editor of the Weird World War III anthology.
This entry was posted in Business, Finance and Economics, Healthcare, Media, Policy, Politics, Socialism, Taxes and tagged , , , , , , , , , . Bookmark the permalink.

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