When the Bank of America (BofA) announced on September 29th that it would charge debit card users a $5 per month fee starting next year, one would have thought from the resulting hue and cry that Christmas had been cancelled. Media pundits derided BofA’s decision, equating the move to Coke’s bungled introduction of “New Coke.” Consumers stamped their feet in childish temper-tantrums, saying that they’d close their accounts and move to another bank if the fee was implemented. Senator Dick Durbin called out, from the floor of the Senate no less, for BofA customers to “Get the heck out of that bank.”

While I expect such shallow and emotional responses from the main stream media and leftist liberals who don’t seem to understand economic realities, I was taken aback by similar responses from the conservative right, to include responses seen in this august forum at The Patriot Post. I had thought that the conservative right was the side calling for fiscal responsibility, transparency and fairness. Apparently I was wrong.

We’ve all heard the expression that there’s no such thing as a free lunch? Well, that expression applies in the case of debit cards too. A free debit card is not free. The last time I checked, banks were not in the business of handing out blanket charity to their account holders. Someone ultimately pays for the operational and administrative costs of those cards.

A debit card is a wonderful convenience, providing immediate access to funds in a bank account without the need to go to an ATM, or worse still, the bank itself to withdraw cash. It allows a card holder to shop without carrying any cash at all. But these conveniences don’t just mysteriously happen for free, so who really pays?

For those of us who are old enough to remember, way back in the good ole’ days there were no such things as free checking or free credit cards (debit cards didn’t even exist). Banks charged fees for a host of products and services, particularly if you didn’t maintain some prescribed account balance, or if you had too many monthly transactions. Banks made money by taking your deposited funds and loaning them back out at some specified interest rate. In return they paid you interest on your deposits. Their profit was the difference between the interest received on the loaned funds and the interest paid to account holders plus operational and administrative costs. If you maintained low account balances or made lots of transactions, you were a drain on profit margins and thus charged fees appropriately.

Then, in the early 70’s, a new financial tool was created: the interchange (or swipe) fee. This fee, which was charged to merchants who accepted credit cards as payment, was initially set at 1.95 percent of the transaction. Merchants at that time had the option to offer their customers a “cash or credit” price and thus recoup interchange fee costs through a higher “credit” price for a product or service. They could also choose not to accept cards with excessively high fees.

Over the years banks have, with the assistance of government regulators and lawmakers, gained a strangle-hold over merchants, prohibiting them from offering “cash or credit” prices and forcing them to accept a host of different card types. The interchange fee structure has also grown. The current table of interchange fees from VISA has over 70 transaction categories, with fees ranging up to 2.95 percent plus up to 25 cents per transaction. As an example, the standard interchange fee for a debit card purchase is 1.9 percent plus 25 cents, thus an 85 cent candy bar you purchase with a debit card ends up being a $1.12 transaction for the merchant, a 32 percent increase.

Merchants don’t simply absorb these costs. If they did, they’d soon go out of business. These costs are rolled into the prices they charge for all of their products and services. In the end it is all customers who, through increased prices, pay for the convenience of debit and credit cards. And it is low fee card holders (i.e., cards without points or cash-back rewards) who, along with cash customers, pay for the rewards of those other cards.

Unlike sales tax, which is a fee itemized on our receipt and part of the cost each customer personally pays, interchange fees are hidden and ultimately paid for by every person who patronizes a merchant, instead of the user of the card. When the Governor raises the sales tax to pay for the costs of running the State, we see that cost on our receipt, and we each pay for it individually and personally. However, when we use a VISA Platinum triple rewards 1.5 percent cash back card, we fail to thank every customer in the store for helping to finance our free card and all the point, miles and/or dollars that we’ll receive at the end of the year.

Are we hypocrites if on the one hand we champion fairness in taxation, moderation in entitlement spending, and transparency in financial affairs and transactions, yet on the other hand we hold up a protest sign saying “BofA - GIVE BACK MY FREE DEBIT CARD!”? Is it fair that an airline ticket, paid for with the miles we “earned” by using our card, was actually funded by every other customer in the stores we patronized through the higher prices they paid because of hidden interchange fees?

As noted above, nothing in life is free. If we want the convenience of a debit card, shouldn’t we be responsible for the cost of it?