If I had a dollar for every time a politician tried to push something through Congress they said would protect consumers, I probably would have back all the dollars these efforts have cost me over the years. Somehow things never seem to line up the way they’re promised and we all pay the price.
Take the period following the so-called Great Recession. With Barack Obama in the White House and the Democrats in control of both parts of Congress, they couldn’t wait to pass all kinds of new rules and regulations governing banks, mortgage lenders, the consumer finance industry, credit cards, and anybody else they believed we all needed to be protected from. It was crackdown on greed and the voters, aided by a cheerleading cadre of reporters that really don’t understand financial issues but write about them anyway, bought it all.
Now that a little bit of time has passed we can see how Dodd-Frank and the Consumer Protection Act of 2010 have actually harmed the same consumers they were meant to help. The worst example of this may be the price controls imposed on debit card transaction fees on the merchants who accept them by the companies that issue them.
This came about as the result of pressure from Illinois Democrat Dick Durbin, for whom the amendment instituting the caps is named. He thought consumers were being taken advantage of, and thought that capping the interchange fees imposed by the banks would get us all a break.
The nation’s’ leading “big box” retailers greatly benefit from the use of debit cards. Transactions process faster (which they like) and that keeps lines moving (which consumers like) and are very convenient (which everybody likes). As soon as the Durbin Amendment passed they started looking for ways to get around the now capped at 21 cents per transaction interchange fees – down from an average of 1.15 percent of the transaction total value – many of them felt were unnecessarily punitive.
What got lost in the discussion were the high costs associated with the use of debit cards. Convenience comes at a price. So does network maintenance, theft protection, reissuing cards to update their security and a host of other things. Banks and other card issuers used to use the income generated by interchange fees to pay for all that. Once the Durbin Amendment capped what could be charged, card issuers had to look elsewhere to recoup their expenses.
Card companies are now charging the same maximum processing fee for smaller transactions as they do for large transactions, saddling small businesses with a sharp increase in business expenses. Debit card use is now limited in many cases and many places have some minimum transaction amount. Free checking has just about gone the way of the passenger pigeon while fees on checking and savings accounts have increased by three to five percent.Just how is any of this better for you and me?
Whatever Sen. Durbin’s intentions, his amendment did not work out the way he said it would. He should be gracious enough to acknowledge this an offer the language necessary to repeal it as the Senate takes up Dodd-Frank reform and repeal. At the very least, if he would rather just forget the whole thing, he shouldn’t fight to save it when someone else introduces language to knock it out. It is bad policy that produced higher prices and left consumers with fewer protections and conveniences than they had before it became law.