Posted on 05/04/2022 6:44:56 AM PDT by Kaslin
The first Durbin Amendment – a set of regulations from Dodd Frank that largely destroyed part of the debit card market – was a fiasco in every way.
A second Durbin Amendment, currently being considered by Democrats in Congress, would be even worse for America’s consumers, community banks, and credit unions.
The original Durbin Amendment – named after its author, liberal Sen. Dick Durbin (D-IL) – was passed in 2010 as part of thelargely disastrousDodd-Frank Act under President Obama. It slapped harsh regulations on debit cards. While the goal was to lower consumers’ cost and exempt community banks and credit unions, the scheme backfired.
Using socialist-style price controls, the Durbin Amendment capped debit interchange fees charged to retailers. In theory, the retailers’ savings would be passed on to the consumer. In reality, however, most retailers simply kept the change. Home Depot even bragged to investors how much money they were pocketing thanks to the Durbin Amendment.
More than 89% of retailers did not lower prices to reflect their lower debit card transaction costs following the adoption of the Durbin Amendment, and many raised prices, according to research published by the Federal Reserve Bank of Richmond.
But the bad news for American consumers didn’t stop there.
The price caps were so unreasonable that banks and credit unions lost money providing debit cards. As a result, consumers faced higher fees and higher account minimum. The debit rewards that used to go straight into consumers’ pockets disappeared.
But don’t take my word for it. The Government Accountability Office (GAO), which works for Congress, recently looked at policies that hinder financial inclusion and raise costs for consumers. They found, “the Durbin Amendment and Regulation II are associated with increases in the costs of checking accounts, according to studies we reviewed.”
Interestingly, the Durbin Amendment’s price caps are so anti-free market, they have since been replicated by the communist Chinese government.
Although the Durbin Amendment is viewed as the financial industry’s version of the Hindenburg, several U.S. senators believesaddling credit cards with the same regulations that all but ruined debit cards would be a swell idea. Sen. Durbin plans to hold aSenate Judiciary Committeehearing to discuss the proposal this week and, if the flawed scheme is accepted in Congress, President Biden would likely immediately sign it into law.
Why does anyone believe the many failures of the Durbin Amendment wouldn’t be replicated in the credit market? Unfortunately, the negative consequences would be far worse.
Just as before, prices wouldn’t fall for consumers – massive companies would again pocket billions of your dollars. But this time, it would eliminate almost everything people like about their credit cards.
Credit card companies would no longer be able to recoup the cost of their expensive network infrastructure and fraud protections to retailers and consumers. As a result, they would have to charge higher annual fees on credit cards, and largely eliminate credit rewards altogether. Consumers obviously like zero fraud liability from lost or stolen cards. Why would anyone push legislation that would jeopardize those consumer protections?
A Durbin 2.0 would also take away consumer choice and force credit card transactions over the cheapest routing network available, rather than the most secure or efficient, or more importantly, the one consumers choose.
This would lead to weaker cybersecurity and more fraud. It would also cause upper-tier credit cards that provide benefits such as airline miles, hotel points, cashback bonuses and other credit card rewards to either eliminate such benefits or significantly devalue them to comply with the new rules.
Finally, let’s be clear who this would hurt the most: small banks and credit unions. They have been disappearing at a rate of 250 a year because of the original amendment. Although they had an “exemption” on paper from the Durbin Amendment, talk to any community bank and credit union and they’ll explain how Durbin devastated their bottom line and hurt their customers. When you raise the cost of credit you hurt community lenders. You hurt small businesses like restaurants and farms who rely on easy access to credit.
The Durbin Amendment was a flop the first time and the sequel will upend the credit market as we know it. It’s a policy that no clear-thinking American should want to see become the law of the land.
If Members of Congress want to help struggling Americans, they should focus on fighting the original Durbin Amendment, not creating a new, even worse version.
The current method of them charging a percentage is bs. Each transaction costs them a fixed amount. They can make a profit charging by the transaction and not a percent of the total like they currently do.
Feds are doing everything they can to discourage cash. However, more and more small businesses are applying surcharges to credit transaction and some to debit transactions at lower fee. I pay almost all businesses with cash except large retail stores.
I know some small businesses that won’t take credit cards or checks anymore.
It’s cash on the barrelhead only.
My initial thought is that credit card companies need to be more transparent and honest in their charges. Some commonsense laws and regulations are needed to keep them in line, establish consumer rights, and make credit card companies liable for bad or sloppy transactions. I think this is especially important since credit cards are a virtual necessity nowadays. Some things you cannot do without a credit card—rent a car, for example.
Allowing those types of charges back and having them identified on the receipt would be better.
Consumers could then decide for themselves if the convenience and security of carrying a card vs cash is worth the diff and good-ole free market competition will establish the rates.
e.g. have a receipt like this:
myStuff---------------$10.00
Interchange fee-------$00.20
Sales tax-------------$00.50
Total-----------------$10.70
Credit cards should be illegal.
” capped debit interchange fees charged to retailers”
What are those fees?
I usually pay cash on Friday night for the local skating rink. $8. I didn't have enough cash on me a couple weeks back. I pulled my debit card. I was charged $8.50. It's a 50 cent "swipe fee".
Another case study on regulatory capture.
Obviously, the PayPal clone is giving them a much cheaper transaction fee.
Total BS.
With my no annual fee Visa Card I got 2% back plus 100% fraud protection.
With the new system, I would have to pay a cash transfer charge whenever I deposit money in the PayPal clone, I get zero percentage back, plus, I provide them with my Visa Card numbers or my checking account numbers with no fraud protection.
I said, F-that noise, and I went back to quarters for the first time in at least 10 years.
This is why there is a shortage of quarters in the USA - people like me refuse to deposit money in the PayPal clones.
I have not been inside my bank in like three years - now, I have to stand in line once a month to get two rolls of quarters, which is their maximum.
The Dodd-Frank Act was mentioned in the article. Reminded me of this oldie-but-a-goodie https://www.youtube.com/watch?v=trZzM4E_h_M
Two Kroger stores here, one in a ‘lower income’
area does the 50¢ fee. Another one does not.
Location, Location, Location
Kroger didn’t get to be #1 in the nation by not figuring out how to price their product.
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