More accusations are flying over the Durbin Amendment. This time, the eponymous amender himself wrote an open letter to Wells Fargo CEO John Stumpf.

On Wednesday, Senator Dick Durbin (D-IL) wrote to Wells Fargo’s John Stumpf, admonishing him and his bank for the $3 debit card charge they are testing out in New Mexico, Washington, Oregon, Nevada and Georgia.

Durbin: I’m Disappointed in You

“If you were hoping that your new fee would go unnoticed, it has not,” wrote the senator, expressing his surprise that they would levy the fee after the Bank of America blow-back.

The senator continued on in disappointed teacher mode, writing, “It is unfortunate, though not surprising, that your bank is now blaming swipe fee reform for your decision to impose this significant new fee on your loyal customers.”

To prove that his controversial amendment is not responsible for the price hikes, and that debit fees are little more than big banks gouging their customers, Durbin broke out the calculator. His figures are pretty damning.

Number Crunching Proves His Point

Using publicly available data, Durbin demolishes the notion that the $3 fee is necessary to cover costs associated with debit card transactions. Durbin shows that before the new regulation, Wells likely pulled in $2.2 billion in 2010 on debit swipe fees, from an average charge of 44 cents on about 5 billion transactions. And, at a low estimate of four cents per transaction, these 5 billion swipes would only amount to $202 million in costs (Durbin does allow that it could have been as high as $608 million in costs), meaning that Wells netted $2 billion a year off of swipe fees before Durbin’s amendment was in place.

According to his calculations, Wells should still clear $1.22 billion annually after the reform goes into place, meaning anywhere from $600 million to $1 billion in net revenue on debit card swipes for the banks, after costs.

“Your spokesman’s claim that Wells Fargo needs to charge all its customers an additional monthly fee of more than $3 in order to make up the ‘cost’ of providing debit cards simply does not add up,” wrote Durbin.

Unless big banks want to make their costs public, it seems like Durbin has finally settled the debate over whether debit fees are necessary for bank’s bottom lines, or if they amount to price gouging.

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  • Jay Gould

    Sen. Durbin’s calculations are correct, but what is his point?  He accuses Wells Fargo of attempting to make a profit, “[i]nstead of making up costs.”  Is Wells Fargo supposed to charge for its services just enough to cover its expenses?  What about its shareholders’ interests?

    But what Sen. Durbin doesn’t mention in his letter is that the lost profits from interchange fees that Wells Fargo is now looking for ways to make up for have not actually disappeared into thin air, nor are they being passed on to consumers. Far from it. The $7 billion or so in annual interchange fees that the Durbin Amendment is costing issuers, are now being collected by retailers and most of it – by big-box stores (e.g. Wal-Mart and Target). It is up to them alone to pass any portion of the windfall on to consumers. If you believe that this will happen, well, I have a news for you.

    The bottom line is that we are now suffering through the entirely predictable side effects of the Durbin Amendment’s passing, for which everyone who was paying attention warned when it was first proposed.  Sen. Durbin should stop bullying businesses for acting in their shareholders’ best interests.

  • Guest

    The real issue is that price controls have always had un-intended consequences no matter who has tried them (Republican like Nixon or democrat).  If Durbin thought that customers suffered from having debit card fees masked there are any number of true free-market tools such as requiring better labeling/disclosures (think FDA labels or uniform credit card disclosure forms), legislation allowing merchants to charge different prices or apply rebates or surcharges for type of card swipe like some do between card and cash, etc.  

  • Uyt

    You guys are missing the point.  The moral of the story of the governments regulations are that they want “banks to go bank to traditional banking” and ot to keep looking at these revenue streams as their main source.  These fees are why banks are not lending and trying to gouge customers to please share holders.  Look at some of the big credit unions they are going through the sameregulations.  However, they are lending money and stadily making money.  You people need to wake up and try to support institutions who are actully helping you instead of gouging you.  Banks take your mone and go out and make these risky investments with it and then you suffer.  The banks are not implementing fees due to regulation.  They are do so to make up for their financial losses due to risky investments.  Wake up and smelllllll what the banks are cooking people – lol. 

    • Leintellectuelle573

      Maybe Dick Durbin should go down to Chase & see where his money it going.

      Hope that Dodd-Frank is able to be completely dismantled as soon as possible.It would be a shame for millions of people to close their B of A accounts,because he’s a fool.I know that baks have to make a profie,& their not “non-profits”.The only thing that matters to me is that they keep stealing my money for absolutely no reason.I hope that I can find a good credit union out there.

  • Mistsyz

    While it may be true that the actual “swipe” costs relatively very little… there are other things to consider that comes with the card. For example, debit card fraud monitoring systems and the people that monitor it. Also there are significant losses in debit card fraud and unauthorized transactions. Whenever you put through a claim with the bank for fraud or unauthorized transaction, vast majority of the time you get your money back. However, the bank usually are not able to get the money back from the perp or that gym that keeps charging you even though you have cancelled your membership. These security programs costs the bank a lot of money. Keep in mind that while our technology is getting smarter, so are thieves’. So while you pay for your car insurance, home insurance, this is also a kind of insurance that you do not pay for and it amounts to a lot of losses to banks… especially the larger ones because they have more customers using their debit and credit cards.