Robert Creamer: Big Banks Plan Sneak Attack on Wall Street Reform Law Within Days

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary SEE LIVINGLIES LITIGATION SUPPORT AT LUMINAQ.COM


Editor’s Analysis: Once upon a time, the Banks were content to make an ordinary profit doing ordinary banking things. Now they see us as prey rather than customers to be protected under their risk-averse general policy. Their current policy to to take your money and make it their money. Their current policy is to take your home and make it their home. Their current policy is to take your pension and make it their capital.

The article below picks up on one oef the many ways they are attempting to accomplish their aims without regard to their customers, and frankly without regard to their own shareholders. Management seeks only one thing — more money for themselves and the power and prestige that comes along with it.

Along the way, with government complicity, they have created huge computer networks that are essentially utilities for the banks to transfer funds. Despite numerous efforts by the Department of Justice, they managed to control the rules by making themselves appear quasi-governmental. Small banks and credit unions are scared of Visa, MasterCard etc. They have rules. None of the bank members know what the rules are because they are never actually delivered to any of the banks.

So the name of the game is make the rules, use the infrastructure to control competition, and make it impossible for any competing bank to take market share away from the megabanks because the megabanks get “special treatment.” The megabanks that once started with such innocuous names as Southeast Switch, Inc. in Maitland, Florda, (later called “HONOR”) realized that they could keep the community bankers and credit unions in check while at the same time forcing the smaller banking institutions to PAY FOR the same infrastructure that limits their profitability and their ability to compete with the megabanks.

It’s really the perfect scam. 7000 smaller institutions not only pay the costs of the network system but create a profit for those who prey on unsophisticated customers and smaller banks and credit unions. The supreme irony of this is that a transaction whose actually cost is less than a 1/4 of a cent including communications expense, is now being charged to customers at the rate of $3-$6 and now will be raised to over $10 because of the front end fees and back end fees the mega banks want to charge.

Customers are misled into believing that only by going to BOA can they have the convenience of a bank that is everywhere, when in fact, the network operations that controls ALL transactions is accessible to even the smallest bank. ATM access is possible for the customers of even the smallest bank, without paying any fee in most instances, even if they go to a BOA, Chase or Citi ATM. It is all a lie. Elizabeth Warren wants the public to have access to this information and the banks want Warren’s mouth to be paralyzed. They are not having much luck there so they are resorting to their usual way of doing things — sneaky legislative attacks and sneaky control over state and federal agencies that are there to protect the consumer but instead do as they are instructed by the unknown names and faces at megabanks.

Robert Creamer

Political organizer, strategist and author

Posted: March 24, 2011 08:39 AM
BIO Become a Fan
Get Email Alerts Bloggers’ Index
Big Banks Plan Sneak Attack on Wall Street Reform Law Within Days

Read More: Bank Lobbyists , Debit Card Interchange Fees , Debit Card Swipe Fees , Dick Durbin , Duopoly , Mastercard , Middle Class , Non Competitive Prices , Visa , Wall Street Banks , Wall Street Bonuses , Wall Street Reform Law , War On The Middle Class , Business News

The big Wall Street banks are planning a sneak attack on an essential element of the Wall Street reform law that was passed by Congress last year. They plan to make their move as early as next week.

The target of their attack is the provision limiting the “interchange” fee that the big banks charge retailers and their consumers every time a debit card is used. Right now, so-called “swipe fees” are set by Visa and MasterCard — who control 80% of all credit card transactions. In other words, they are not subject to competitive market pressure of any sort. They are fixed by the Visa-MasterCard duopoly.

According to the Federal Reserve, $16.2 billion of debit interchange fees were paid in 2009.

It is estimated that the financial reform law will save consumers $10 billion of that total. How could that be? Because it should come as no surprise to anyone who has even a passing acquaintance with Economics 101, that fees set by a duopoly have no relationship whatsoever to the costs of the transaction.

They are in fact just one more mechanism that Wall Street has used to siphon an increasing percentage of our Gross Domestic Product out of the pockets of the middle class and into the increasingly-bloated financial sector.

The central problem of our economy — and society — is that virtually every dime of the considerable economic growth of the last twenty years has gone to the top two percent of the population. Wall Street salaries and bonuses have exploded, while middle class incomes have stagnated.

From 1948 to 1980, profits generated by the financial sector represented from 5% to 15% of all U.S. business profits. Then they began to creep up — and finally explode — to an unbelievable 40% right before the Great Recession. They dropped briefly, and by the end of 2009, they were back to 36% .

Let’s remember that the financial sector does not make anything. Its goal is to take a little piece of every transaction as money flows through its hands — what novelist Tom Wolff calls the “golden crumbs.”

In the last twenty years, the exploding financial sector has sucked the lifeblood out of the American middle class. It has vacuumed money out of the pockets of people who actually work for living producing goods and services. It has siphoned off virtually every dime of economic growth so that real middle class incomes have actually fallen at the same time the economy has grown. That wasn’t just disastrous for the middle class — it was catastrophic for our entire economy. It meant that there weren’t enough consumer dollars available to buy new goods and services — a problem that was temporarily solved by the credit bubble until it ultimately collapsed and cost eight million Americans their jobs.

To put it simply, the financial sector — and especially the big Wall Street banks — are a huge cancer growing on our economy.

To have an economy that will allow long-term, widely shared, growth — we have to shrink the financial sector and put money back into the hands of companies that produce actual goods and services, and consumers who buy them.

The Wall Street reform law made a big step in the direction of reining in the big Wall Street banks. And a key element of that law was the provision that prevents the duopoly power of those big banks — exercised through Visa and MasterCard — from fixing the price of the fees merchants pay every time you use your debit card.

The new law requires that these fees must be reasonable and proportionate to the cost of running a debit transaction over that network’s wires. But it turns out their actual cost of providing this service is very low. If prices for “swipe fees” were set by the competitive market, they would dramatically fall because of competitive pressure. But since the prices are set through a duopoly they allow gigantic profits for the banks.

Right now Visa and MasterCard — at their sole discretion — set different fee rates for different types of debit transactions. For example, they charge higher fee rates for small businesses than for large ones. Most debit interchange fee rates are set as a percentage of the transaction amount plus a flat fee (e.g., 0.95% + $0.20). The Fed found that the average interchange fee for all debit transactions in 2009 was 44 cents per transaction, or 1.14% of the transaction amount.

The Fed put out a draft rulemaking in December 2010 that suggested options for reform. Both of the options suggested limiting interchange fee rates for the biggest 1% of banks to 12 cents per transaction (down from the average 44 cents per transaction today). This comes close to the 0.2% debit interchange rate that Visa and MasterCard recently agreed to use in the European Union. A reduction of this amount would save U.S. consumers around $10 billion per year.

Now, this proposed rate is obviously not below their costs, since that’s what they agreed to charge in Europe.

But the big banks are desperate to hang onto the gusher of profit that comes out of American pockets.

They have used their enormous lobbying muscle to convince some otherwise decent Senators, that this is really nothing more than a battle between the banks and retail merchants. Baloney. Non-competitive “swipe fees” are just one more way they reach into the pool of money generated by the real economy and set it aside so it can end up as part of some Wall Street banker’s multi-million dollar bonus check. And you can be certain that most retailers don’t eat the costs of “swipe fees.” They pass the vast majority of these costs on to consumers in the form of higher prices.

Nonetheless, next week the big banks hope to get the Senate to pass an amendment “delaying” implementation of this law. This delay would save the banks — and cost consumers — about $10 billion a year, simple as that. The provision’s original sponsor, Senator Dick Durbin (D-IL), promises to lay down on the tracks to prevent them from being successful. But there is still a grave danger that the bankers will succeed.

That’s because the big banks hope to conduct this attack without a great deal of public notice. They have conducted a vigorous PR campaign inside the beltway, but out in the rest of the country, no one has heard word one about this issue.

And this is just the beginning. If they are successful with “swipe fees,” they will be emboldened to try to gut other sections of this critical law.

The big banks do well under cover of darkness. When they are exposed to the bright light of public attention — as they were during the battle over financial reform — consumers had the high political ground. The Wall Street reform bill got tougher as it moved through the legislative process because Members of Congress were afraid to side with Wall Street against ordinary Americans.

Now, the big banks hope to conduct their attack on the Financial Reform Law while the voters are focused on a new war in Libya, a nuclear disaster in Japan, the battle over collective bargaining and March Madness.

Big bank lobbyists are like cockroaches.When you turn on the light they scatter, but they take over if they’re allowed to operate in the dark.

When you’ve finished reading this article, pick up the phone, call your Senator and turn on the light. Tell them to keep Wall Street from gutting this key provision of the Wall Street Reform Law.

Robert Creamer is a long-time political organizer and strategist, and author of the book: Stand Up Straight: How Progressives Can Win, available on

5 Responses

  1. Move your money to a small local bank or credit union. Starve the moster mega banks out of business. Cash is a good way to go. All your transactions cannot be tracked that way. The mega banks track everything you do with debit and credit cards. Pay cash and avoid the problems.

  2. Is this possibly the reason for the big push on debit cards most if not all with the Visa name. Was the possibly “by design”. Can’t help but feel that this has all been orchestrated from way back to slowly but surely take what little you have left. Guess people will continue to willing give the mega banks their hard earned money for the sake of convenience but at a price. I left the mega banks years ago and am very happy I am not one of the ones giving what little there is to them, the mega banksters. Now to get my mortgage out of their hands.

  3. As a computer expert, this article comes close to nailing it. Just imagine the classic shell game, placed into code, and out of sight. It’s only later when the rube knows he’s been had! People – we are being had!

  4. I’ll go back to standing in the teller line for cash and paying with cash or money orders. Screw the fees, the banks aren’t getting any more out my family.

Contribute to the discussion!

%d bloggers like this: