Archives for Financial Reg and Overhaul/Durbin

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!

Senate May Delay Price Controls on Debit Cards (updated)

Last year, Congress intervened in an old-fashioned business dispute. Today, it may take a step back, and let the competition of business run its course. If we’re lucky.

Whenever you use a debit card to make a purchase, your bank pays a small fee to the store. Merchants, including Illinois-based Walgreens, don’t like that, so they got Sen. Dick Durbin (D-Ill.) to limit the fees they pay. In other words, they got the feds to impose a price control.

Today the Senate will vote on a proposal to delay the implementation of the price control, known as the Durbin Amendment, by a year. That’s a good start, though we’d like to see it done away with altogether.

I got wind of this issue because TCF filed suit against the law, and they’ve got some good points. But whether I think banks have the better argument should be irrelevant–as should what Sen. Durbin thinks. What we have here is a standard business dispute over pricing, and government has, to borrow a boxing metaphor, decided to throw the fight.

For more, see here.


The proposal to delay the Durbin Amendment, offered by Sen. Jon Testa (D-Mont.) failed. It got 54 votes but needed 60. Minnesota’s two senators voted no, meaning they supported price controls.


Price Controls on Debit Cards: The Minnesota Angle

We’ve been following the fate of the Durbin Amendment because with its price controls and favoritism, it’s a great example of a bad policy. It also has a Minnesota angle, too, as a recent editorial in the Star-Tribune mentions.

The editorial supports a delay in the implementation of the Durbin Amendment, something I wrote about earlier, and would support. (Even better would be to scrap the amendment.)

The Star-Tribune editorial recognizes several important facts about the legal limit on the fees that banks charge to merchants for their participation in credit-card transactions:

  • It’s a form of price controls
  • It’s a windfall for retailers
  • It’s the result of some-state boosterism by Sen. Durbin (D-Ill.)
  • It “ignore[s] that banks must cover the costs of processing transactions, including taking on the risk of fraud.”
  • Congressed decided to pick a “winner” between banks and merchants

The Star-Tribune also notes the impact on one bank with a large number of employees in Minnesota: “TCF Financial sued the Fed over the amendment, warning that the 12-cent limit would cut its annual profits from $120 million to $70.4 million.” If that’s actually the case, jobs are threatened by political fiat.

The success and failure of TCF should depend on how well it serves the needs and wants of its consumer and business customers–not whether it (like Walgreens) has a powerful political patron.

By the way, you can read the TCF lawsuit (PDF) here; as far as legal documents go, it’s an interesting read.

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