Tag Archives: Fee

Dodd-Frank causes Bank of America to cut 30,000 jobs and raise debit card fees

From the Wall Street Journal.

Excerpt:

What is the cost of overregulation? Bank of America appears to have provided part of the answer by announcing yesterday that the nation’s largest bank will cut 30,000 jobs between now and 2014. CEO Brian Moynihan said the bank’s plan is to slash $5 billion in annual expenses from its consumer businesses.

Mr. Moynihan didn’t say this, but we will: These layoffs are part of the bill for the last two years of Washington’s financial rule-writing. After loose monetary policy had combined with insane housing policy to create a financial crisis, the Democrats who ran Washington in 2009 and 2010 enacted myriad new rules that had nothing to do with easy money or housing.

Take the amendment that Illinois Democrat and Senator Dick Durbin (with the help of 17 Senate Republicans) attached to last year’s Dodd-Frank financial law. Mr. Durbin’s amendment instructed the Federal Reserve to limit the amount of “swipe fees” that banks can charge merchants when customers use debit cards.

How exactly does forcing banks to charge Wal-Mart less money for operating an electronic payment system prevent the next financial crisis? Readers may wait a long time for a satisfactory answer, but the cost of this Dodd-Frank directive is straightforward.

The Fed dutifully ordered banks to cut their fees almost in half. Bank of America disclosed in its most recent quarterly report that this change will reduce the bank’s debit-card revenues by $475 million in just the fourth quarter of this year. The new rules take effect on October 1, so BofA seems to have sensible timing as it begins to shed workers from a consumer business that has become suddenly less profitable by federal edict.

Make that the latest federal edict. In 2009, when a comprehensive overhaul of financial regulation was still a gleam in Barney Frank’s eye, President Obama signed the CARD Act into law. It limited the ability of banks to increase rates on delinquent borrowers and to charge fees on unprofitable customers. As Washington encouraged card issuers to be more selective in advancing credit and to demand higher rates when they do, interest rates on card customers predictably increased relative to other types of lending in the months after the law took effect.

Restricting bank profits on a particular product may have obvious populist appeal, but politicians shouldn’t be surprised if banks decide that such consumer credit operations aren’t good businesses and can function with fewer employees. Add in the various federal programs aimed at extracting penalties for this or that mortgage-foreclosure error and it’s understandable that a bank would have trouble forecasting growth to justify its current work force.

But that’s not all. The Dodd-Frank regulation also caused Bank of America to raise fees on debit cards to $5 a month ($60 a year).

Excerpt:

Throwing their weight around at the height of the banking crisis, House Financial Services Chairman Barney Frank of Massachusetts and Sen. Chris Dodd of Connecticut vowed to stick it to banks. They blamed them for the mess to cover up the fact that they forced banks to lend to favored constituencies who could not repay.

The two Democrats pushed through the much-vaunted Wall Street Reform and Consumer Protection Act, which President Obama signed and touted as one of the signature accomplishments of his presidency.

That act, which included a micromanaging amendment on fees, carried a $2.9 billion implementation cost for that alone over five years, according to the Government Accountability Office.

It was nothing but the same old pandering to special interests. Named after Illinois Democratic Sen. Dick Durbin, the amendment limited fees that banks can collect from sellers when their customers make debit card purchases — cutting 44 cent fees to 21 cents.

That little bomb is now why battered Bank of America has no choice but to impose a $5 monthly fee — $60 a year — to consumers to make up for lost revenue.

The “economics of offering a debit card have changed with recent regulations,” a bank spokeswoman told ABC News Friday.

BofA says it stands to lose $2 billion from the arbitrary Durbin price-fixing amendment and now has no choice but to make up for the lost revenue some other way.

Now that consumers will be stuck with that fee, they can thank Dodd, Frank and Obama for that special little spike in inflation tailored just for them.

Other banks, by the way, might follow. And like banks, consumers may respond in a way that is logical to their interests, too.

If there is one person who is to blame for this recession, it’s Barney Frank. Chris Dodd isn’t far behind. Who elected these people, and do they understand economics? I think not.

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MUST-READ: New York Times critiques socialized medicine

Ed Morrissey links to this New York Times article from Hot Air.

Excerpt:

New York’s insurance system has been a working laboratory for the core provision of the new federal health care law — insurance even for those who are already sick and facing huge medical bills — and an expensive lesson in unplanned consequences.

[…]The problem stems in part from the state’s high medical costs and in part from its stringent requirements for insurance companies in the individual and small group market. In 1993, motivated by stories of suffering AIDS patients, the state became one of the first to require insurers to extend individual or small group coverage to anyone with pre-existing illnesses.

New York also became one of the few states that require insurers within each region of the state to charge the same rates for the same benefits, regardless of whether people are old or young, male or female, smokers or nonsmokers, high risk or low risk.

Healthy people, in effect, began to subsidize people who needed more health care. The healthier customers soon discovered that the high premiums were not worth it and dropped out of the plans. The pool of insured people shrank to the point where many of them had high health care needs. Without healthier people to spread the risk, their premiums skyrocketed, a phenomenon known in the trade as the “adverse selection death spiral.”

Obama plans to get around the problem of healthy young people opting out of paying for other people’s health care by fining them.

The new federal health care law tries to avoid the death spiral by requiring everyone to have insurance and penalizing those who do not, as well as offering subsidies to low-income customers.

[…]Under the federal law, those who refuse coverage will have to pay an annual penalty of $695 per person, up to $2,085 per family, or 2.5 percent of their household income, whichever is greater. The penalty will be phased in from 2014 to 2016.

How does this reduce health care costs? It doesn’t. But it does explain why we have so many uninsured in this country – they don’t buy insurance because government regulations requiring mandatory coverages have made it a bad deal for them. Young men don’t need to pay for in vitro fertilization and sex changes. They don’t use it, so why should they agree to pay for other people’s problems? They have their own lives to live.

Ed Morrissey explains:

If nothing else, this proves a couple of points that critics have made all along.  The mandates are nothing more than a way to get the young to create a proxy welfare state by forcing them into a usurious insurance model.  It does nothing to reduce actual costs, and in fact makes cost increases both more likely and more amplified.

Now you understand socialized medicine. The left plays on people’s fears and insecurities in order to gain control of the economy. They promise to take care of people, so that people can stop worrying about taking responsibility for their own choices. Once the leftists are elected, they take money from the young people who don’t understand what is happening to them, and they give it away to special interests in order to buy votes.

How do Democrat policies stimulate the economy?

Consider this Washington Times article to see how it works. (H/T Gateway Pundit)

Excerpt:

The Obama administration revealed last week that as much as $16.1 million from the stimulus program is going to save the San Francisco Bay Area habitat of, among other things, the endangered salt marsh harvest mouse.

That has revived Republican criticism that the pet project was an “invisible earmark” in the massive spending bill for Mrs. Pelosi, whose San Francisco district abuts the Bay, and epitomizes what Republicans say is the failure of stimulus spending so far to help an economy still shedding jobs.

“Lo and behold, the government has announced that the mouse is getting its money after all,” House Minority Leader John A. Boehner, Ohio Republican, said, standing beside a poster of the furry varmint. “Speaker Pelosi must be so proud.”

Mrs. Pelosi’s office was quick to dismiss the criticism.

My preferred stimulus was to spend under $400 billion and to temporarily suspend the employer portion of payroll taxes, so that American employees would go on sale. When people have jobs, then they are comfortable spending money. But Obama and Pelosi preferred to spend the money on mice. American workers or mice? Which one stimulates the economy?

Earlier this week I wrote about how well the first two stimulus bills worked, and how the Democrats would like to pass a third stimulus bill.

Raising taxes

Democrats also think that raising taxes on businesses and individuals will stimulate the economy. See, when the unemployment rate goes to 9.5%, and everyone has to pay more for electricity and gas, then Democrats believe that people will spend more.

Consider this article from Politico which lists some of the ideas they are considering. (H/T Michelle Malkin)

Excerpt:

— Broaden the 1.45-percent Medicare tax on earned income to “passive income,” which could include money from capital gains, rental properties and businesses that do not require direct participation. This could raise $100 billion.

— Levy a five-percent surtax on individuals who earn more than $500,000 and couples that make $1 million.

— Tax health benefits at a higher level than had been considered. Two scenarios are in play. Taxing plans worth more than $20,300 for a family and $8,300 for an individual could raise $240 billion. Increasing the cut-off to plans worth more than $25,000 would bring $90 billion.

— Capping the tax break on itemized deductions at 28 percent, as President Barack Obama had proposed, or freezing the top deduction rate at 35 percent when the Bush tax cuts expire in 2010. The first scenario would raise $168 billion, while the second would collect $90 billion.

— Issue tax credit bonds to pay for the proposed Medicaid expansion, raising $75 billion.

— Charge fees to pharmaceutical manufacturers, bringing in as much as $20 billion, and insurance providers, raising $75 billion.

– Raise taxes on sodas and sugary drinks. A 3-cent hike could pick up $30 billion, and a 10-cent hike could make $100 billion. This one already appears out of favor: Many senators have specifically ruled out the sugar tax, and a Senate Democratic source said it was the one option that was clearly not gaining traction with committee members.

Try to think about what effect this will have on the person who rents you your apartment, who supplies your employer with capital, or who pays your salary. Try to think about whether you will pay more or less for the goods and services you need when the people who provide them are attacked by the government. Try to think about what effect increased borrowing will have on the prosperity of your children.