Dick Durbin Responds To Proposed Debit Card Fees: 'Now Is The Moment For Smaller Banks'

10/04/2011 02:26 pm ET | Updated Dec 04, 2011

Following announcements late last week that Bank of America was planning to charge a $5 fee for debit card use, and that other banks were considering adding similar fees, Republicans quickly blamed Senate Majority Whip Dick Durbin.

Durbin's amendment to the Dodd-Frank Act caps fees banks have been raking in from retailers for processing debit card transactions -- a charge the Chicago Tribune dubbed the "Durbin fee." But the senator says the fees could actually have a positive impact on Illinois' economy by driving dissatisfied customers to community banks and lessening the damage on retailers and small business owners statewide.

Durbin responded to the Bank of America proposal, which other banks including Wells Fargo & Co., JPMorgan Chase & Co. and SunTrust Banks Inc. have expressed interest in mimicking, by sending a letter to the presidents of the Illinois Bankers Association, the Illinois Credit Union League and the Community Bankers of Illinois Tuesday morning. The letter urged smaller banks and credit unions to "seize this competitive opportunity" as Illinois consumers look to move their deposit accounts to smaller financial institutions.

"Now is the moment for smaller banks and credit unions to make crystal clear to these consumers the superior benefits and customer service that your institutions provide compared to the Wall Street giants," he wrote in his letter to Linda Koch, Dan Plauda and Robert Wingert.

As a result of Durbin's amendment, the Federal Reserve instituted a 24 cent cap on swipe fees Saturday, roughly 20 cents lower than the previous average swipe fee. Running a card costs banks roughly between 7 and 10 cents per swipe.

Durbin's comments echo frustrations with large national banks that have exploded into a nationwide movement in solidarity with Occupy Wall Street, an ongoing demonstration against consumer abuse whose Chicago chapter reached its 13th day of protests today.

In a press conference Tuesday morning, Durbin slammed the proposed Bank of America fee as greedy and opportunistic, citing that a rough calculation suggests the $5 monthly fee will generate profits far in excess of any profits the bank would lose because of his interchange fee amendment, which limits the size of fees charged to retailers for debit card transactions that he says have translated to inflated pricing, hurting retailers and consumers.

At the news conference and in the letter he sent out Tuesday morning, Durbin said that the window before Bank of America's fee goes into effect is a key moment for smaller banks and credit unions in Illinois.

"I believe in something called competition. Great word. We use it in a free market economy. And if the Bank of America decides they want to run the risk of losing their customers, I want their customers to make the conscious decision to take their business to banks that will treat them better," Durbin said. "This is an opportunity for community banks and credit unions that issue debit cards to win some customers over. That's going to help our state and our economy. It's an opportunity for customers to get a break, and it's a break for retailers who've been penalized by these banks for so long."

Rep. Brad Miller, a Democrat from Bank of America's home state of North Carolina, told HuffPost that the next step in this process would be making it easier for consumers to switch banks by simultaneously swapping direct deposit, electronic bill paying and other automatic features that make switching banks difficult. He said easing the process of switching banks will be the most effective way to empower consumers against abuse by big banks.

“If we can find a way to introduce real competition into banking, that'd do more than any regulation," Miller told HuffPost. "The biggest banks have turned the switch for market forces to the off position. If consumers could shop around for banks the way they can for everything else, banks wouldn’t think they had a God-given right to pay their executives vulgar bonuses and still make enormous profits, and consumers would get a much better deal."

Durbin also emphasized the statewide benefits of easing transaction fees for Illinois retailers, which can trickle down to consumers through lower prices and economic stimulation--more profitable businesses "will be able to hire more employees at a time when we need more jobs," Durbin said during the news conference.

When asked about the many criticisms blaming his amendment for the looming debit card fees, including his home state newspaper the Tribune, Durbin dismissed them as misinterpretations of the origins of these new charges.

"There are a lot of reasons I ran for office," he said in the news conference. "Protecting the profits and bottom lines of banks and credit card companies was not one of them." He later added: "If Bank of America decides they want to nail their loyal customers, they should be held accountable."