Can some good news come out of Washington DC? Yes. Key regulators at the Fed and FDIC have been signalling for weeks that they do not support price controls contained in the Durbin Amendment to the financial overhaul known as “Dodd-Frank.” This according to an article at the Star-Tribune, among other places.
Under the draft of regulations proposed by Fed staff, the U.S. government “would cap the fees that banks charge to retailers — known as ‘interchange’ fees — at 12 cents per transaction, about 70 percent below the 44-cent average charge in 2009.”
Retailers, who don’t like to pay the fees, found a friend in Sen. Dick Durbin (D-Ill.), who placed language into Dodd Frank to enact a cap, which is, face it, a form of price controls. That’s the first thing that’s wrong with the cap. The second is that it puts government into the position of picking sides in a old-fashioned business dispute between banks and merchants such as Walgreens and Best Buy. Retailers say they are paying too much in fees, and want government intervention. They got it in the Durbin Amendment.
For the longest time, TCF was the only major bank to speak out against the idea, going so far as to file a lawsuit against the Federal Reserve. Recently, however, it found a companion in Wells Fargo CEO John Stumpf, who told the Economic Club of Minnesota that price caps on interchange fees was a form of price controls. Good for him.
What’s the consumer to think of all this? Skepticism would not be a bad place to start. Retailers say they will offer lower prices to consumers are a result, but after Australia enacted a similar measure, independent researchers found no evidence that occurred.
On the other hand, it’s obvious that banks are not high on anyone’s list of “most admired industries,” so the crocodile tears shed by people who left comments at the Star Tribune website are understandable.
Banks, retailers, and consumers all benefit from the fact that consumers can buy stuff with debit cards. Who actually bears the costs–banks, consumers, or retailers? I don’ t know the answer, and given the games that companies can play with accounting, I doubt we can ever know. Better then, to let banks and retailers slug it out with each other, than to let member of Congress pretend that they know the “right” price for interchange fees.
For earlier commentaries on this subject, see:
Large Government Breeds Rent-seeking
The Daily Caller quotes MNFMI president Kim Crockett on this issue: “People don’t know what the Durbin amendment is. They’re going to be mad at their banks and they’re not going to connect all the dots.”
CNN says “Your debit card may soon be denied for purchases greater than $100 — or even as little as $50,” as a result of the proposed rule. It also mentions that some banks are considering rolling out new fees on checking accounts.”