On Tuesday, Senator Bernie Sanders took to Twitter to criticize bank ATM fees.
While many on social media mercilessly attacked the Presidential candidate, the Senator raises an interesting point. After all, in October the Huffington Post reported that ATM fees have never been higher.
Of course the real question is why are bank ATM fees so high?
While it is likely the socialist Sanders will simply attribute it to the greed of Wall Street, I think the real culprit is the Wall Street reform bill Bernie Sanders voted for – the Dodd-Frank Act. Dodd-Frank, one of the most significant -- if overlooked -- pieces of legislation signed by Obama, was Washington’s predictably disastrous attempt to respond to the 2008 financial crisis. While Dodd-Frank did nothing to address the root causes of the financial crisis (the Federal Reserve, for example, received a limited audit in exchange for increased regulatory responsibility) it was an opportunity for legislators to throw in a bunch of pet projects into a must-pass law.
One such attachment came from Illinois Senator Dick Durbin, which capped the fees banks charged for debit card transactions to 21 cents. While this may seem like a small matter, the Durbin Amendment was reported to have cost Bank of America over two billion dollars when it came into effect in 2011. While it’s hard to feel much sympathy for any of the Too Big to Fail Banks (who are even bigger now post-Dodd Frank) the consequences of these fees are not being felt by fat cat CEOs – but by normal people.
For example, since banks used to be able to charge more than 21 cents per debit transaction on large purchases – say 41 cents when buying a $3,000 TV – they would charge less on small dollar purchases – maybe 6 cents on a $2 cup of coffee. When banks could no longer charge more for large purchases, they made it up by increasing the fees on small dollar transactions. Customers of RedBox movie rental may have noticed that $1 dollar movie rentals became $1.20 in 2011.
Banks compensated for the loss of revenue, along with the additional costs of Dodd-Frank compliance, in other ways as well. Free checking accounts have disappeared, bank account minimums have gone up and – yes – ATM fees have increased across the country.
Of course none of these unintended consequences are particularly surprisingly to anyone familiar with economics. Nor is it surprising that Sander's solution is simply more price fixing. Unfortunately Bernie's real problem is not ATM fees or the Big Banks, but basic economics. As Ludwig von Mises wrote on price fixing:
Economics does not say that isolated government interference with the prices of only one commodity or a few commodities is unfair, bad, or unfeasible. It says that such interference produces results contrary to its purpose, that it makes conditions worse, not better.
So perhaps instead of venting his frustrations on Twitter, or campaigning against the Uber cars he loves to use, Bernie should crack open Human Action.
