Grave Debit Fee Forecast

October 1, 2011

He said this would happen: Professor Todd Zywicki of George Mason University School of Law in an exclusive NEXTcast interview for earlier this month predicted bank branch closures and additional, far-reaching consequences as a result of the Dodd-Frank financial overhaul bill and the Fed’s subsequent debit interchange caps.

Last week, IBC Bank announced 55 branch closures, and later, news broke that Bank of America plans to begin assessing a $5 monthly fee for customers purchasing with debit. Zywicki voiced his reaction in an editorial for the Wall Street journal, asserting his belief that more banks will follow IBC in closing bank branches rather than increase fees for services. He also predicted that consumers will be coaxed to switch from debit to “alternatives such as credit cards, which remain outside the Durbin amendment’s price controls.”  

“Conceived of as a narrow special-interest giveaway to large retailers, the Durbin amendment will have long-term consequences for the consumer banking system,” Zywicki continued in the editorial. “Wealthier consumers will be able to avoid the pinch of higher banking fees by increasing their use of credit cards. Many low-income consumers will not. Banking will become less innovative and consumer-friendly.”

Zywicki cited an estimate earlier this year by economists David Evans, Robert Litan and Richard Schmalensee that stated as many as 1 million consumers will now end up forgoing mainstream banking system in favor of check cashers, pawn shops and high-fee prepaid cards. Click here to read Zywicki’s full WSJ editorial.


Related: Will You Lose Your Job Due to Dodd-Frank? Legal Expert Predicts Banks’ Next Move

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