When the Wall Street Reform and Consumer Protection Act of 2010 was signed, the country's financial giants knew it posed a threat to a host of "transaction fees" that helped banks and credit card companies rack up $16 billion in profits in 2010. (By some estimates, the reform legislation was expected to cut "fee revenue" by $8 billion.) But the Big Banks and Card Companies had already prepared an elaborate response that included the introduction of new fees and the creation of a front group designed to sabotage the law — by pretending to spearhead a consumer friendly "reform campaign" involving a popular Internet activism site.
It was predictable that the new monthly fees the Bank of America (BofA), Chase, Citi and others slapped on debit cards would cause customers to erupt in fury. Evidence uncovered by The Planet suggests that the imposition of these slap-in-the-face fees actually may have been part of an elaborate, collective corporate strategy to foment an upswell of consumer anger that could then be channeled — via Internet-based activism — into a "popular mainstream movement" to overturn the reform legislation.
However, the banks appear to have badly misjudged the mood of the public. As a result, the country is now witnessing the start of what appears to be a long-overdue mass-exodus from commercial banks into small, locally owned banks, savings and loans and credit unions.
By the closing days of October, the consumer revolt had caused BofA and its ilk to publicly reverse its position on debit card fees. This is not the way the Big Banks and Card Players hoped this would pan out.
BofA's Stealth Campaign to Undercut Wall Street Reform
The Planet has discovered that the Bank of America is part of a large but low-profile financial industry campaign designed to strike at the perceived heart of the problem — the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (WSRA) and, most specifically, its Durbin Amendment. It was the Durbin Amendment that capped the "swipe fee" on debit cards to between 7-12 cents (thereby cutting bank and credit card company "transaction fee" profits by an estimated 80%). Note: the Durbin Amendment only applies to companies with more than $10 billion in assets. (Only three of the country's 7,000-plus credit unions have $10 billion in assets.)
When "Dodd-Frank" went into effect on October 1, the financial industry was ready. The banks threatened to tighten the noose on credit, impose higher interest rates for borrowers, apply new fees and introduce a $50 spending cap on every debit card transaction. They also went to work on an Internet-based stealth campaign to trick the public into helping them overthrow the Durbin Amendment.
In mid-October, a new sign-on campaign popped up on the popular online petition site, CapWiz. An email alert was directed to hundreds of thousands of online activists. The message began on sympathetic, consumer-friendly note: "Across America," it declared, "we're seeing higher fees, the end of free checking and disappearing rewards — without a penny of savings at the cash register."
"Fortunately," the campaign announcement continued, "some members of Congress are standing up for consumers" by introducing legislation to "reverse the harm" being visited on debit card users. The CapWiz appeal called on activists to urge their elected representatives to co-sponsor a proposed remedy — repeal of the Durbin Amendment.
Given the national uproar triggered by BofA's announcement of a $5 monthly fee on the use of its debit cards, the campaign's stated goal was designed to have a broad appeal — i.e., "to prevent higher debit card fees." Similarly, the mass-mailing was perfectly timed to coincide with the growing swell of consumer anger over newly announced "monthly fees" for the use of debit cards.
"Let's join together and make our voices heard," the CapWiz posting read. "Don't make us pay. Don't let the merchants shift their costs to you…. Fight against giant retailers."
Given the consumer-versus-merchants tone, it might come as a surprise to learn that the campaign was actually created by a corporate front group — one that includes the same banks and credit card companies that imposed the fees in the first place.
Ignore the Little Man behind the Curtain
The Dump Durbin campaign was posted by the Electronic Payment Coalition (EPC) whose spokesperson, Trish Wexler, sympathetically bemoaned "this unfortunate situation for consumers — playing out in the form of higher costs to own and use a debit card."
On its CapWiz petition, the EPC claims that its members include "credit unions, banks, and payment card networks" whose shared goal is to protect "consumer choice…." But a little online research reveals that EPC's 60-plus members include the Bank of America, Barclays Bank, Capital One Financial Corporation, Citi, JPMorgan Chase, Wells Fargo and the world's largest credit-card companies, MasterCard and Visa.
The Planet contacted CapWiz (which is owned by the London-based news company, The Economist Group) for comment. We pointed out that what initially looks like a consumer friendly campaign was actually backed by "the same big banks that are currently dunning customers with onerous new fees." The Planet wanted to know if, armed with this information, CapWiz would be taking steps to assure that users were not unwittingly "hoodwinked into helping promote the interests of profit-hungry banking and credit/debit card companies."
The initial response from a representative of CQ Roll Call (which oversees CapWiz operations from a headquarters in Washington, DC) was curt and evasive: "I recommend you direct your questions to the owners of the campaign."
In a follow-up letter, The Planet asked if CapWiz has any "policies regarding misrepresentation by corporate Astroturf front groups using CapWiz." We asked whether there were any "mechanisms for users to report abuses" and whether CapWiz had the ability to "correct or remove misleading campaigns."
In a noncommittal response, CQ Roll Call replied in an email: "We require clients to follow acceptable Internet practices, policies and standards." Attached to the email was a copy of the company's policy on "Use of Site(s)." While it states that all liability for "content errors" rests exclusively with the client, the policy does go on to state that CQ Roll Call "shall have the right to immediately terminate the Agreement for Clients use in violation of this Section." As of press time, the Durbin campaign was still posted and active.
It may be that CapWiz is not the kind of grassroots resource many users take it to be. Two clues: (1) The CapWiz url reads: http://corporate.cqrollcall.com. (2) The Website boasts that, as "the pioneer and market leader of online advocacy," CQ Roll Call delivers the "legislative intelligence" needed to manage and mobilize campaigns. "When it comes to grassroots mobilization, congressional relationship management, and PAC management," CQ Roll Call states, "we can help…."
What the Durbin Amendment Does
The Wall Street Reform and Consumer Protection Act was intended, in part, to put a lid on a host of controversial banking fees. One of the most onerous was the so-called "overdraft protection" fee that covered charges to credit card accounts that lacked sufficient funds. In some cases, a customer buying a $10 pizza could wind up paying a back $35 for overdraft "protection." According to Bloomberg, 185 million Americans routinely exceed their debit card limits and wind up making "protection" payments.
In the month before the WSRA went into effect, BofA did away with overdraft protection for its debit-card users and, in order to make up for lost revenue, announced it was introducing a $5 monthly debit card use fee.
The Durbin Amendment caps debit interchange fees at 21 cents plus 0.05% of the cost of the transaction (a rate that is still considered to be quite favorable to the financial industry). Previously, if a shopper made a $10 credit card purchase, the merchant would receive $9.80 and send 20 cents to a credit card firm. Under Durbin, merchants can take the entire $10 and charge the 20-cent transaction fee to the customer.
The amendment also introduced new competition into a sphere of commerce that had been dominated by the duopoly of MasterCard and Visa. Thanks to the WSRA, customers are no longer forced to use the STAR network and can opt for less costly competitors like PULSE and NYCE.
Because of their shared stranglehold on merchant exchange fees, MasterCard and Visa have been able to jack up the charges for their "processing" services far beyond the actual costs of managing the transactions. In Europe, where anti-trust laws are more robust, "swipe fees" are much lower than in the US.
The banks and credit card empires justify their high fees by arguing that they are required to cover the costs of "fraud protection efforts." In Europe, credit and debit cards are protected with "chip-and-PIN" technology, which significantly lowers the risk of fraud. Jamie Henry, a WalMart payment services director, claims US financial corporations have blocked the adoption of such fraud-protection tools because making transactions safer would remove the industry's main argument for continuing to impose high fees.
BofA's Next Dirty Trick
On October 18, BofA posted a third-quarter profit of $6.2 billion. Yet, despite making billions in profits, the Bank of America has not paid any federal taxes in the last two years. In 2010, BofA actually claimed a $1 billion "tax benefit" from the IRS.
How did they manage this? By claiming a pre-tax loss of $5.4 billion. (BofA is able to show a "loss" on its US operations in part because it hides much of its profits in overseas havens that remain beyond the reach of US tax laws.)
But that is not to say that BofA is all that stable financially. It turns out that BofA's holding company, BAC, is saddled with a moldering pile of "troubled financial derivatives" that it picked up when it acquired Countryside (an empire of fraudulent loans) and Merrill Lynch. BAC is in bad straits these days, with credit rating agencies downgrading its worth, due in large part to this mass of toxic financial assets.
BofA's solution to its looming problems is to arrange a "transfer" of its "bad derivatives" from its holding company to its public entity, the Bank of America. Why is this helpful? Because the Bank of America is federally insured and the holding company isn't. In essence, BofA hopes to transform its private debt into a public debt.
The Federal Reserve has supported this plan. The administrators of the Federal Deposit Insurance Corporation (FDIC), however, vigorously opposed the planned transfer, which could leave US taxpayers exposed to billions of dollars of potential risk. (For a detailed analysis, see "Not with a Bang, but a Whimper: Bank of America's Death Rattle," by William K. Black. Currently posted on commondreams.org.)
Need another reason to move your money out of BofA? Here's one: BofA is the only major US lender lacking an A3 or higher rating from the US Comptroller of the Currency. If you haven't done it already, now's the time to join the national http://moveyourmoneyproject.org "Move your Money" campaign on November 5.
Gar Smith is a Berkeley-based writer and the winner of several Project Censored Awards.