Archives for Durbin Amendment

One Year Later: Frank-Dodd “Reform” Leaves Fannie and Freddie Intact

You may recall that we have covered the Minnesota angle to the  Durbin Amendment to Frank-Dodd to bring light to the price controls and other measures designed to interfere with debit fees.  We joined the Competitive Enterprise Institute, Americans for Tax Reform and 60 Plus in comments to the Federal Reserve last winter on this issue.   Our friend and colleague, John Berlau, from the Competitive Enterprise Institute, has an article in National Review  “Dodd-Frank’s Fannie Trap”   that neatly updates us on this behemoth legislation parading as reform.

Recall that it was Fannie and Freddie that helped drive out nation to the brink of financial melt-down in 2008. It’s now 2011. Where are we?

Fannie and Freddie now securitize nine out of ten (90%) of home mortgages and have unlimited funding from you and me. This does not look Democratic Capitalism to me. That percentage is inverted from where it ought to be; the private mortgage market has been driven out of business by the Feds.

Berlau says there may be good news:

The good news is that a strong bipartisan bloc of more than 320 members of Congress isn’t buying the administration’s line. The legislators have written to regulators demanding the new rules be scrapped. The bad news is that if Congress doesn’t move fast to repeal, delay, or modify the qualified-residential-mortgage provisions, the administration is likely to dig in its heels, and the GSE-expansion option will become more appealing, even to some Republicans. Witness the bill of Rep. John Campbell (R., Calif.), which would create a single GSE potentially more costly than Fannie and Freddie

Thanks for the heads up, John and CEI!

Feds to Consumers: We’ll be Only Somewhat Draconian

A legal challenge to price controls on debit card interchange fees has fallen flat. The Star-Tribune (“TCF v. Bernanke? Bernanke wins again“) reports that TCF has lost a legal challenge to the Durbin Amendment.

A U.S. appeals court in South Dakota Wednesday rejected TCF Financial Corp.’s effort to block the law with an injunction. The bank was arguing the new law, the so-called Durbin amendment passed last year as part of the Wall Street Reform Act, was unconstitutional.

The nine-page decision in TCF v. Ben S. Bernanke came out hours before the Federal Reserve Board announced it is capping the fees large banks can charge merchants for debit card transactions at 21 cents per customer swipe — higher than the 12 cent cap it originally proposed, but much lower than the current industry average of about 44 cents.

You can read the full opinion at the 8th Circuit Court of Appeals. The court’s ruling makes one of the points I’ve been making as we’ve followed this issue: Consumers will pay for debit-card use, one way or another. “The Durbin Amendment only restricts how much certain financial institutions issuing a debit card may charge for processing a transaction; it does not restrict how much those institutions may charge their customers for the privilege of using their debit-card services.” [Emphasis in the original.] In other words, hello annual fees for debit cards!

Our friends at the Competitive Enterprise Institute, meanwhile, comment on the actions of the Federal Reserve, which has decided to make the price controls somewhat less strict, raising the allowable fee from 7-12 cents per transaction (previously considered) to 21-26 cents, which will allow financial institutions to “cover most of their costs” from debit cards.

“Still,” says CEI scholar John Berlau, “this will result in government-forced shifting of costs from some of the nation’s wealthiest retailers to the backs of consumers.”

To repeat a theme that has been constant in our commentary on this topic: The “right” interchange fee should be made in the marketplace, not in the Congress or the federal bureaucracy.




Our friends at the Competitive Enterprise Institute d


NAACP Sounds the Alarm on Debit-Card Fee Caps

The Wall Street Journal reports that the NAACP has joined the chorus of critics of the “Durbin Amendment” which directs the Fed to put price controls in place for debit-card fees.

“We are especially concerned about the potential impact the proposed rule could have on the ability of low- and moderate-income consumers to gain access to affordable small bank products and services,” Ms. Bair said in a letter sent Thursday to Federal Reserve Chairman Ben Bernanke.

Democrats have joined in the effort to slow down the new rules which are due in April.

This is a rare instance of a bi-partisan effort to slow down or stop legislation that was not debated or carefully reviewed when it passed. We applaud the effort to take a second look at the Durbin Amendment and hope that this attitude is contagious. Now that the NAACP (and the National Community Reinvestment Coalition) have gotten the message that the proposed price controls will harm the poor, we are optimistic that the Durbin Amendent to Dodd-Frank, as written, is dead.

Now the question is whether the Beltway can resist the temptation to try to fix the Durbin Amendment with “tweaks” or if it will have the wisdom to simply abandon price controls for debit cards. Who really cares about the consumer or whether the poor can avail themselves of banking services?

Remember that the reason Sen. Durbin gave all along was that his price controls that favor retailers like Walgreens and Best Buy by lowering “swipe fees” would help consumers because retailers would pass on the savings to its customers. We see it as big retailers using their political clout to get from legislation what they could not negotiate with banks and card issuers. And we do not believe retailers would pass much if any of the savings on to consumers. What is clear is that price controls would distort the banking market. If lawmakers really want to help consumers, they will remove themselves from the business of debit cards.

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