BofA CEO Defense of Debit Card Fees: Logical Argument, Awful Delivery (BAC, C, WFC, JPM)

At times it seems that highly paid CEOs live in another universe that is barely related to the world the rest of us inhabit. And the CEOs of the largest US banks are among those at the outer reaches of that universe.  The latest example comes from an interview with Bank of America Corp. (NYSE: BAC) CEO Brian Moynihan by CNBC’s Larry Kudlow.  It could just as well have been the CEO of Citigroup Inc. (NYSE: C), Wells Fargo & Co. (NYSE: WFC), or JPMorgan Chase & Co. (NYSE: JPM). The issue this time is the $5/month debit card fee that BofA will institute next year.

According to Moynihan, a bank’s customers understand that the bank has a “right to make a profit.” The size of those profits have been one part of what has driven thousands of people onto Wall Street in protest, although it’s not clear just what they’re opposed to or in favor of. That’s a different story though.

Moynihan’s argument sounds like pure nonsense if you just read the CNN article that has been making the circles.  It sounds like outright whining if you just read that article.  The actual interview has a different tone to it.  The change in swipe fees has greatly changed banking profits.  The swipe fees were invisible to customers, but hit retailers hard. The National Retail Federation estimates that swipe fees could be adding as much as $427 annually to an average household’s expenses.

What Moynihan could have said, instead of whining about his right to make a profit, is that the lowered swipe fee cap combined with BofA’s new monthly fee provides transparency into what it really costs consumers to use a debit card. Even with the new bank fee, debit card users will end up paying less because retailers won’t have to add the swipe fees into the cost of their goods. Transparency for consumers is good, and BofA does have a right to charge for service, even though customers thought they were getting the service at no cost before.

President Obama has cried out against an inherent right of the banks to make a certain profit.  The interview with Larry Kudlow does not look as bad nor does it sound as bad when you actually watch it.  The reports around this interview do portray a very large degree of whining, much more so than the actual interview. 

Paul Ausick