The nine most terrifying words in the English language are, I’m from the government and I’m here to help.
The other two words that are most terrifying are Dick Durbin…at least to consumers, small businesses and small financial institutions.
The Fix Was Control
Passed as part of the Dodd-Frank financial reform legislation in 2010, an amendment inserted into the bill by Illinois Sen. Dick Durbin required the Federal Reserve to set prices on fees charged to retailers for debit card processing—establishing price caps on debit interchange fees. The move was the culmination of a lobbying campaign championed by Fortune 500 companies like WalMart. They claimed that a reduction in these fees would be passed along to consumer in the form of lower prices. That, of course, never happened.. A study from the George Mason University law school determined that retail prices didn’t drop after the law passed.
Not only did consumers not benefit from lower prices, they were hit with higher fees. After the Durbin measure went into effect, fees on deposit accounts increased an average of 3% to 5%. The increases consumers faced included monthly account maintenance charges, insufficient-funds fees, and inactivity fees. Banks also cut back on debit card rewards programs. Additionally, consumers have found that just 45 percent of noninterest checking accounts are now free, down from the peak of 76 percent just two years before. Small merchants paying increased fees like RedBox, pass on these increased costs to consumers.
A 2014 Fed study on the impact of the Durbin Amendment on retailer prices have found that few merchants reduced prices while a sizable fraction of merchants increased prices or limited the use of debit cards.
According to the Electronic Payments Coalition, EPC: prior to government intervention, interchange was about 1% for a debit transaction. Now price-controlled transactions — both the $2 muffin and the $2,000 television — are subject to the same rate of a few dimes (21 cents plus a penny for fraud, plus .05% of the transaction). For the muffin vendor, that’s nearly a 1000% increase in interchange fees. For the big-box retailer selling the flat-screen TV, they’re paying nearly 100% less. Small merchants selling everyday items are paying the price so that big-box retailers can profit.
The Fix Is Repeal
Conservative organizations are lobbing to repeal the Durbin Amendment on behalf of consumers, small businesses and small financial institutions. They recently sent a letter to House Financial Services Committee Chairman Jeb Hensarling (R-TX) arguing that reform of Dodd Frank must include repeal of the Durbin Amendment:
Dear Chairman Hensarling,
On behalf of the undersigned free market organizations and taxpayer advocates, we write to urge you to maintain the provision that repeals the Federal Reserve’s price fixing for interchange fees from debit card purchases—also known as the “Durbin Amendment”—in the Financial CHOICE Act moving forward. The federal government should never be in the business of price-setting, a function better performed by the market. The Financial CHOICE Act seeks to undo some of the Dodd-Frank Act’s most damaging regulations, and repealing the Durbin Amendment must remain a high priority.
We know the debate over the Durbin Amendment pits retailers against debit card issuers. But we think one should not focus on choosing between interested parties, but focus on principle: it is the market, not the Federal Reserve or any other bureaucracy , which should set the price of a service. Government intervention would only be justified in the case of collusion amongst network platforms, a matter, in any such event, for the courts.
President Donald J. Trump has referred to Dodd Frank as a disaster, and a part of the disaster is the Durbin Amendment. In order to drain the swamp and eliminate the cronyism which has profited from bureaucratic cronyism and government regulation, the Durbin Amendment must also be repealed so that consumers, small businesses, and small financial institutions can have more choices, dictated by a free market and main street, not by an Illinois senator with extensive ties to K street and big-box retailers.