How many more times will liberal politicians give us price control schemes before they learn these kinds of policies don’t work? The Durbin Amendment, enacted in 2010 as part of the Dodd-Frank banking regulations law signed by President Barack Obama, is another example of failed prices controls done at the expense of the consumers they are always supposed to benefit.
Dodd-Frank was passed by liberals in Congress to enact regulations on the banking industry after the credit crunch that began in 2008. Some politicians, including Sen. Richard Durbin (D-IL) had a solution in need of a problem in deciding that retailers were charging too high an “interchange” fee, the small processing charge for processing customers payments from Visa and MasterCard accounts. Of course, retailers thought paying a small percent on credit and debit card transactions was too much and pressured likes the like of Sen. Durbin to put price controls on the interchange fees. The Durbin Amendment allows the allows the Federal Reserve to regulate the interchange fee charged by Visa and MasterCard.
The explosion of consumer use of debit cards has been a huge benefit for retailers and consumers alike. Most consumers use them to make most purchases because of the convenience of spending money via the cards rather than using cash. Since the enacting of the Durbin Amendment, any savings realized by retailers paying lower interchange fees has not been passed along to consumers in the form of lower prices at the cash register. Retailers, BusinessWire reported, have pocket an estimated $36 million over the last six years.
The other result of this price control on interchange fees, at the expense of consumers, has been the change in policies by banks in response to the lost revenue the Durbin Amendment has caused. Shortly after the signing of Dodd-Frank into law, many major banks imposed or raised monthly fees on basic checking accounts by $5 or more. Before Dodd-Frank, free checking accounts were available from nearly all the major and regional banks. But six years later, only 39 percent of banks nationally now offer free checking. First Tennessee Bank, one of the most popular in this area, provides its most basic checking account for a monthly services charge of seven dollars.
One grass roots citizen group has started a campaign to inform the public how the Durbin Amendment has limited consumer choices and raised the costs of banking services. The Competitive Enterprise Institute (CEI) has initiated the “Durbin Dollars” campaign to bring public awareness to the issue. The group urges citizens to send to Sen. Richard Durbin (D-IL), the author of the Durbin Amendment, the “Durbin Dollar” that features the Senator’s picture, has a $5 face value, representing the typical monthly fee banks charge for checking accounts, noting the end of free debit cards and free checking that most consumers enjoyed before Dodd-Frank.
“Just as bad money drives out good money, our Durbin Dollars show that bad policies drive out good products, such as free debit cards and free checking,” said Sam Kazman, CEI General Counsel.
Relief for consumers could be on the way. Rep. Randy Neugebauer (R-TX), the Chairman of the House Financial Institutions Subcommittee, has introduced H.R. 5465 to repeal the Durbin Amendment.
“Today, I introduced H.R. 5465, which will repeal the misguided debit swipe fee reforms introduced by the Dodd-Frank Act. Section 1075 of the Dodd-Frank Act, commonly called the Durbin amendment, represents an egregious example of the Federal government picking winners and losers. Simply put, it represents crony capitalism at its worst,” Neugebauer announced about the legislation.
Repealing the Durbin Amendment will strongly benefit consumers, and has the support of the Consumer Bankers Association (CBA), a group representing citizens and small business owners who are consumers of banking services. CBA has issued a letter supporting the Neugebauer legislation to repeal the Durbin amendment, noting its benefits to consumers.
The free market has proven it sets prices and wages more effectively than any economic system invented by human beings. Every attempt to over ride the natural functions of the free market by politicians and bureaucrats to set price controls has lead to failure. They cause either high prices or lack of consumers choices or shortages of products and services. Price controls simply don’t work and any notion they do is entirely antiquated thinking. The Durbin Amendment is just the latest example of the epic failure of price controls.
