Durbin Amendment backfires
Posted: Friday, October 28, 2011 2:54 pm
By: Sen. Bob Corker
We have seen numerous examples of the wet blanket the Dodd-Frank financial regulatory reform bill has thrown on the U.S. economy since it passed a year ago. But for many Americans, problems associated with it seemed distant and theoretical. Until now.
Beginning this month, customers at many banks are being told that using debit cards will cost them a monthly fee.
Why? The answer lies in a provision of Dodd-Frank, known as the Durbin amendment, which sets a limit on the price that banks can charge retailers for their customers’ use of debit cards.
Though debit cards can offer benefits to customers and merchants alike, the government price-fixing idea was sold in a moment of populism as a great way to stick it to the country’s biggest banks.
There is no doubt that retailers had valid concerns, and, true, some changes needed to be made. But this was not the solution.
Retailers argued they were being charged too much by big banks for debit-card transactions, and that if Congress would put in place a price cap on these interchange fees, they would pass savings along to consumers.
Unfortunately, as many of us predicted, the reality looks somewhat different.
Services related to debit-card transactions — including fraud protection and customer service — were not considered in the cap and are no longer covered by the transaction fee merchants are charged.
So banks have been forced to choose: run their debit-card businesses at a loss or charge customers a fee. Given that banks are private companies, with shareholders, they are predictably choosing to charge customers a fee. As a result of the Durbin amendment, and this price cap, the era of free checking may be coming to an end.
And what about the savings we were promised in the form of lower retail prices? I wouldn’t waste time looking for those. Prices paid by consumers are unlikely to drop 1 cent. Interchange revenue will just go to the big box retailers’ bottom lines — while consumers foot the bill.
Who’s to blame? Not banks. Not retailers either. This was entirely a self-inflicted wound by a Congress more interested in scoring political points than doing the right thing by the American people.
The Durbin amendment should serve as a lesson to Congress and this administration that “feel good” measures passed in a spirit of populism that cause politicians to pick industry winners and losers are often counterproductive. And the American people are left paying the price — literally.
Sen. Bob Corker (R-Tenn.) is a member of the Banking, Housing and Urban Affairs Committee.