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Sneaky Banks to Lay Foundation for Their Own Collapse

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THE BANKSTERS
DailyFeed
It seemed like the perfect plan. And in the end it was. So perfect, in fact, that it actually worked... it worked too much. Desperate to squeeze the last remaining fee from credit wary and cash-strapped consumers, the major banks are plotting the perfect plan: cap debit card transactions -- even if you run your debit card as credit -- at $50. Okay, maybe $100 for some.

The goal, naturally, is to get around banking reform by exploiting a loophole. Currently, banks and retailers split something called an Interchange Fee every time a customer makes a debit card purchase. These fees, while small, in the aggregate add up to more than $16 billion per year, according to Federal Reserve data. The problem is that banking reform scheduled to go into effect in July is slashing those fees from an average 44 cents to a 12 cent cap. As a result, banks such as JP Morgan Chase (JPM) will lose as much as $1 billion a year once the reform legislation takes effect.

So, how does this play out? First, banks are going to raise fees across the board for everything from checking accounts to savings accounts and typical transactions and services that for customers today are in many cases free. Second, they're going to raise fees for issuing credit cards, because consumers will now need to have credit cards to make many transactions -- groceries for example -- that exceed the $50 or even $100 limit. Oh, and then there's the issue of credit quality, which for consumers has deteriorated significantly since the housing crash. Lower credit quality means still more fees in the form of interest rate increases, etc.

I know, it's an outrage. But for different reasons than you might expect. Essentially, by capping debit card transactions banks are laying the foundation for their own next crisis while fueling an acceleration of the secular trend away from consumption. How? Many consumers will simply opt out of credit cards, and by doing so dramatically reduce their consumption. It's remarkable how much consumption you realize you don't need once you lose access to it. What about that $150 grocery bill, though? Won't this hurt? Sure, it's an inconvenience, but for those without a credit card it simply turns into lower but more frequent transactions. I'll make three $50 transactions at the grocery instead of one $150 transaction.

From the Socionomics perspective, this is the perfect plan at the perfect time. The unintended consequences will be brutal for banks. As usual, banks are underestimating the Socionomic trend behind the behavioral changes that not only drove the recent housing collapse but will continue to drive consumer debt revulsion. This debt revulsion is only beginning. Ironically, banks are unwittingly going to train a new generation in reduced consumption habits and increased savings. That's bad news for retailers and banks alike, both of which are leveraged and dependent on consumer spending and velocity.
POSITION:  No positions in stocks mentioned.

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