Dodd-Frank

Retailers Don't Need Another Regulatory Handout

Hidden consequences of banking regulation hurt poor people the most.

|

Money
Dreamstime

Benjamin Franklin said there are only two things certain in life: death and taxes. But I'd like to add a third: cronies coming back for more after Washington gives them a handout. Case in point, the merchants and retailers who got a juicy morsel from Dodd-Frank are now clamoring for more.

Sen. Dick Durbin, (D-Illinois), slipped into the monstrous 2010 Dodd-Frank financial regulation bill a favor long sought by big-box retailers, such as Wal-Mart. The Durbin amendment, as it is known, imposed price controls on interchange fees for debit cards. Interchange fees are what banks and card issuers charge retailers for processing payments. Many consumers prefer to use cards instead of cash, so it's advantageous for retailers to provide that as an option.

While retailers are all too happy to reap the benefits—which include cutting labor and security costs and retaining customers by accepting card payments—they don't much like paying the market price to do so, hence the intense lobbying to secure a Durbin amendment-type provision.

The price controls in the Durbin amendment only apply to debit cards. However, as George Mason University professor Todd Zywicki predicted in 2011, the unintended consequences of the regulation have cut enough into the financial windfall expected by retailers that they now want price controls for credit cards, too.

That would be crazy. Enough evidence has accumulated in the years since Dodd-Frank to give regulators pause. For instance, multiple studies have identified negative and unintended consequences from the Durbin amendment's price controls for debit card interchange fees. A large survey of merchants conducted by the Federal Reserve Bank of Richmond found that few have lowered consumers' prices despite a substantial reduction in their payments to debit card issuers.

At the same time merchants have reaped a windfall, customers have found that banks are quick to make up the losses elsewhere. Benefits such as rewards programs have been cut or eliminated, while numerous fees have been increased—including account maintenance charges, insufficient-funds fees and inactivity fees, to name a few—yielding a net negative for consumers. One estimate puts the total net loss to consumers between $22 billion and $25 billion.

This shouldn't come as a surprise. Government interventions rarely benefit the public at large. Usually, they just help the special interests that pushed for them. Unfortunately, Congress is more apt to respond to pressure from special interests than it is to watch out for our general welfare. Moreover, earlier this year, Europe imposed a cap on interchange fees for credit cards, as well as debit cards, making very similar arguments for consumer savings as those used to back the Durbin amendment. The move energized the call on this side of the Atlantic to do the same.

The Durbin amendment was slipped into a major regulatory bill by a Democratic majority in Congress. To be fair, some Republicans supported the rules, too. The question, then, is whether the current Republican-controlled Congress knows better today and will deny out of principle the calls for additional handouts for retailers. Unfortunately, its record on cronyism has been mixed at best.

Nevertheless, members of Congress have considerable evidence in front of them demonstrating the costly folly of setting price controls on payment processing—which they should heed, not only to justify rejecting calls for greater intervention but also as cause for undoing past mistakes.

COPYRIGHT 2016 CREATORS.COM

NEXT: Obama Oversteps His Authority With Gun Orders

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can’t believe how easy it was once I tried it out. This is what I do..

    Clik This Link inYour Browser….

    ? ? ? ? http://www.WorkPost30.Com

  2. What a shocking result. You mean that when organizations cut or have reduced costs, it doesn’t impact the supply/demand curve on which they set prices for their products? Holy hell. Who woulda thunk it.

  3. Start working at home with Google! It’s by-far the best job I’ve had. Last Wednesday I got a brand new BMW since getting a check for $6474 this – 4 weeks past. I began this 8-months ago and immediately was bringing home at least $77 per hour. I work through this link, go to tech tab for work detail.
    +_+_+_+_+_+_+_+_+_+_+_+_+_+ http://www.buzznews99.com

  4. Even modest reform of the uncompetitive debit-card market saved consumers almost $6 billion in just its first year, economist Robert J. Shapiro found, and supported 37,500 jobs.

    And free checking has actually increased, according to the American Bankers Association’s own surveys, which found free checking accounts jumped from 53 percent of all checking accounts to 61 percent since debit reform.

    In fact, if anyone is playing crony capitalism with the swipe fees on debit and credit cards, it is the banks.

    What apologists for the banks never mention is that just two companies, Visa and MasterCard, so dominate this market that they can price-fix outrageously high swipe fees — 500 percent profit margins, according to the numbers the banks themselves report to the Federal Reserve.

    That’s a margin you don’t see often in U.S. business, and it looks even juicier against most merchants’ margins of a percent or two. What this means is that merchants must raise prices to cover the fees, meaning consumers pay more for everything from food to fuel ? even if they don’t use a card. That hurts poor people the most.

    As for the Federal Reserve study cited by the author, no matter how you spin it, the study shows ? because banks convinced the Fed to hamstring implementation of the Durbin Amendment ? that a whopping 90 percent of the merchants surveyed either saw no drop in swipe fees or didn’t know.

    –Michael Flagg
    Merchants Payments Coalition

    1. if the space is that profitable, what is to stop another company from moving in?

      1. Financial regulation has given Visa and MC a near monopoly on the market, so more regulation now is supposed to distribute the spoils to more companies.

    2. Two wrongs don’t make a right. Like most people advocating for more regulation, “modest reform”, as you might put it, you’re only giving us half the story, true as that half might be. It’s a truism to say “let the market decide”, but seriously, it’s not the government’s job to decide what playing field market actors play in, but simply to rectify actual and provable wrongs. Perhaps MasterCard and Visa have such an overwhelming position in the market because of previous regulations in the credit card industry. And how many regulations control the banking industry?

      Instead of advocating for more regulation, we should be advocating for less. They should repeal previous interferences in the market that allow businesses to ignore, to some degree, what actual consumers want.

    3. Even modest reform of the uncompetitive debit-card market saved consumers almost $6 billion in just its first year, economist Robert J. Shapiro found, and supported 37,500 jobs.

      Robert J. Shapiro, undersecretary of commerce to Bill Clinton, and involved with Kerry, Gore, Moynihan, Obama, the IMF, the Climate Task Force, and the Progressive Policy Institute. The man obviously hates free markets, believes in massive government intervention in the economy, and will fabricate arguments to that effect on demand. In particular when he is well paid for it. Using this guy to support your claims shows that you are nothing but rent seekers and astroturfers, and that you have no interest in helping consumers, competition, or free markets.

      You want to do something to make the economy more efficient? Lower barriers to entry for payment card processors and banks, and oppose regulation for banking alternatives like Bitcoin. But, of course, you like barriers to entry for payment processing, since they increase barriers to entry into your market too; you just want your cut.

  5. All of the Reward Cards and Miles and the like are a huge scam. The card companies “give” cash back and miles to the cardholders but charge the merchant extra to accept them. The merchant has no say in the matter except to not take cards, which these days means to no longer be in business. If the merchant raises prices to cover these costs, than everyone who does not have a rewards card pays extra for those who do, just as those who pay cash also pay extra to cover the cost of the transaction fees and merchant discount.

    Many no longer even carry cash and put everything on a card. If our country is going to move to electronic currency, why do we have to pay the banks to administer it?

    1. That’s one of the biggest reasons we shouldn’t move to electronic currencies–aside from making it easier for gov’t to spy on our spending habits and thus deduce private details about us and to manipulate the currency to suit its political preferences, it makes it even easier to get hit by fees, fees on fees, and other hidden charges.

      And for what? Do we really gain that much advantage in exchange for the fees, hidden charges, and interest paid on credit cards? If we added up all the five minutes saved each time we swiped a card and then multiplied that times our average hourly wage, would we be saving money or losing money?

      Hopefully much of America will go back to physical cash when the Fed tries to force us to spend money by going deep into NIRP. Smart households will probably operate in two financial worlds: one set of “banked” electronic money to do business with other banked entities and one set of physical cash to do business with other unbanked entities. The latter will grow in size as the elite try to control us even more through electronic currencies. Eventually, the central banks will try to ban physical cash, at which point private forms of physical cash will have to arise (scrip, etc.) That too will be banned, but enforcing it will be difficult. Hell, maybe we can pit gov’t against gov’t by using foreign physical cash here in the USA, kind of like how Argentinians use illegal physical US dollars instead of their own worthless pesos.

      1. I gain an advantage. I do not have to carry wads of cash on me. I do not have to hit the ATM every time i need to buy something. I also pay $0 interest since i pay my full balance every month. It is stupid to not use credit, since the additional fee is baked into all merchant pricing.

      2. That’s one of the biggest reasons we shouldn’t move to electronic currencies–aside from making it easier for gov’t to spy on our spending habits and thus deduce private details about us and to manipulate the currency to suit its political preferences, it makes it even easier to get hit by fees, fees on fees, and other hidden charges.

        That’s utter bullshit. Electronic currencies can combine the speed and convenience of debit/credit cards with the anonymity of cash. That’s the whole point.

    2. If not the banks, then exactly who should administer electronic currency? Some new organization or organizations that we deliberately refrain from calling banks, even if they are actually performing as a bank? The credit card companies (which are not really banks)? The government? Or are you just objecting to paying a business for performing its functions?

      I’ve got an idea. Why not let anyone who wants to administer electronic currency, and see who the consumers prefer to do business with?

      All you people are so paternalistic and completely ignore the consumer’s will and wishes in the marketplace, calling for government regulation, and ignore the fact that it is the government that enables businesses to ignore the consumer’s wishes in the first place, with its excessive regulations and cronyist privileges.

      1. If not the banks, then exactly who should administer electronic currency?

        Where is this stupid notion coming from that currencies need an “administrator”? Currencies based on precious metals didn’t need a central administrator. You can exchange a pound of silver in the privacy of your own home, and you know what you get. For convenience and for speeding up transactions, people often used certification services and depositories, but those were optional and private. It was only when the government monopolized those services by law (and for political reasons) that there ended up being an “administrator”, but the function of that administrator was rent seeking, not anything beneficial to the currency itself.

        Today, nobody is “administering” Bitcoin; electronic currencies don’t need an “administrator”. All that’s needed for electronic currencies to thrive is non-interference from government. However, if we don’t watch out, they’ll go the same way as precious metal currencies.

  6. My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can’t believe how easy it was once I tried it out. This is what I do..

    Clik This Link inYour Browser….

    ? ? ? ? http://www.WorkPost30.com

  7. My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can’t believe how easy it was once I tried it out. This is what I do..

    Clik This Link inYour Browser….

    ? ? ? ? http://www.WorkPost30.Com

  8. I just realized this was written in 2002. I wonder what the gun crime rate is now. Any government that tells you that you have no right to self defense is not looking after your best interest. Self defense is the most basic right anyone has. No government or police can protect you. I can’t believe you all allow this to continue. I keep a gun at home for self defense and have a license to carry it concealed any where I go. And I do. If I am attacked then at least I have a chance to stay alive. By the time the police arrive they can either arrange for my body to be picked up or take a statement from me. I choose the later. Britons let a right be taken from them and now it will be much harder to get it back. But you should try.
    ???? ????? ??????
    ???? ????? ??????

  9. I just realized this was written in 2002. I wonder what the gun crime rate is now. Any government that tells you that you have no right to self defense is not looking after your best interest. Self defense is the most basic right anyone has. No government or police can protect you. I can’t believe you all allow this to continue. I keep a gun at home for self defense and have a license to carry it concealed any where I go. And I do. If I am attacked then at least I have a chance to stay alive. By the time the police arrive they can either arrange for my body to be picked up or take a statement from me. I choose the later. Britons let a right be taken from them and now it will be much harder to get it back. But you should try.
    ???? ????? ??????
    ???? ????? ??????

  10. I just realized this was written in 2002. I wonder what the gun crime rate is now. Any government that tells you that you have no right to self defense is not looking after your best interest. Self defense is the most basic right anyone has. No government or police can protect you. I can’t believe you all allow this to continue. I keep a gun at home for self defense and have a license to carry it concealed any where I go. And I do. If I am attacked then at least I have a chance to stay alive. By the time the police arrive they can either arrange for my body to be picked up or take a statement from me. I choose the later. Britons let a right be taken from them and now it will be much harder to get it back. But you should try.
    ???? ????? ??????
    ???? ????? ??????

  11. I just realized this was written in 2002. I wonder what the gun crime rate is now. Any government that tells you that you have no right to self defense is not looking after your best interest. Self defense is the most basic right anyone has. No government or police can protect you. I can’t believe you all allow this to continue. I keep a gun at home for self defense and have a license to carry it concealed any where I go. And I do. If I am attacked then at least I have a chance to stay alive. By the time the police arrive they can either arrange for my body to be picked up or take a statement from me. I choose the later. Britons let a right be taken from them and now it will be much harder to get it back. But you should try.
    ???? ????? ??????
    ???? ????? ??????

  12. I just realized this was written in 2002. I wonder what the gun crime rate is now. Any government that tells you that you have no right to self defense is not looking after your best interest. Self defense is the most basic right anyone has. No government or police can protect you. I can’t believe you all allow this to continue. I keep a gun at home for self defense and have a license to carry it concealed any where I go. And I do. If I am attacked then at least I have a chance to stay alive. By the time the police arrive they can either arrange for my body to be picked up or take a statement from me. I choose the later. Britons let a right be taken from them and now it will be much harder to get it back. But you should try.
    ???? ????? ??????
    ???? ????? ??????

  13. I just realized this was written in 2002. I wonder what the gun crime rate is now. Any government that tells you that you have no right to self defense is not looking after your best interest. Self defense is the most basic right anyone has. No government or police can protect you. I can’t believe you all allow this to continue. I keep a gun at home for self defense and have a license to carry it concealed any where I go. And I do. If I am attacked then at least I have a chance to stay alive. By the time the police arrive they can either arrange for my body to be picked up or take a statement from me. I choose the later. Britons let a right be taken from them and now it will be much harder to get it back. But you should try.
    ???? ????? ??????
    ???? ????? ??????

  14. I just realized this was written in 2002. I wonder what the gun crime rate is now. Any government that tells you that you have no right to self defense is not looking after your best interest. Self defense is the most basic right anyone has. No government or police can protect you. I can’t believe you all allow this to continue. I keep a gun at home for self defense and have a license to carry it concealed any where I go. And I do. If I am attacked then at least I have a chance to stay alive. By the time the police arrive they can either arrange for my body to be picked up or take a statement from me. I choose the later. Britons let a right be taken from them and now it will be much harder to get it back. But you should try.
    ???? ????? ??????
    ???? ????? ??????

  15. I just realized this was written in 2002. I wonder what the gun crime rate is now. Any government that tells you that you have no right to self defense is not looking after your best interest. Self defense is the most basic right anyone has. No government or police can protect you. I can’t believe you all allow this to continue. I keep a gun at home for self defense and have a license to carry it concealed any where I go. And I do. If I am attacked then at least I have a chance to stay alive. By the time the police arrive they can either arrange for my body to be picked up or take a statement from me. I choose the later. Britons let a right be taken from them and now it will be much harder to get it back. But you should try.
    ???? ????? ??????
    ???? ????? ??????

Please to post comments

Comments are closed.