by Jon Decker
Sometimes it’s obvious when the government takes money from you—it’s right there on your paystub or receipt. Other times, it comes through backdoor deals, onerous regulations, and other ways the government can manipulate the economy to your disadvantage.
Fourteen years ago this month, one of the more appalling parts of the Dodd-Frank Act went into effect—the Durbin Amendment. It was Dick Durbin’s personal creation that put price controls on what companies were permitted to charge to process debit cards used at stores.
A price control is a government mandated maximum price for a product or service. Instead of a price reflecting the demand for a product, a price control reflects successful lobbying. In this scenario, it was large retailers who wanted to use the government to cap the fees they pay to accept customers’ debit cards.
Many people don’t know this, but it is community banks, credit unions, and credit card companies that fund and maintain the infrastructure for processing electronic payments. They also are the ones building payments technology and navigating fraud cases to protect your financial data. To make this profitable, these financial institutions charge retailers when a customer buys something with a card they’ve issued. These fees are usually proportionate to the size of the sale and average two percentage points or so.
Big corporate retailers like Walmart and Home Depot asked Dick Durbin to set a government-controlled cap on this charge. They believed it to be unfair that credit card companies and banks charge for this technology, and Senator Durbin loves nothing more than a government handout. These stores swore they would pass along any extra profit onto their customers.
We can all guess what happened when the Durbin Amendment went into effect—a giant wealth transfer occurred from consumers and banks to the retailers. It’s estimated, initially, banks lost more than $6 billion in interchange revenue a year. Now, more than a decade later, that number is estimated to be substantially higher at over $100 billion total since 2012. Very few merchants even passed those savings on. Retailers kept billions—there didn’t pass anything along to consumers.
When these financial institutions suddenly lost revenue, they had to make cuts and increase their prices just to keep up. Depending on how young you are, you may recall a time when you could earn rewards when you used a debit card—that’s no longer the case. Free checking also used to be much more accessible and have less associated fees.
These price controls were incredibly controversial and couldn’t stand on their own. It’s why they were added during the final hours before the Dodd-Frank vote. This tactic works—voters and fellow politicians are distracted when urgent legislation is on the floor. Sen. Durbin and his co-conspirators tried it again this past year by trying to slip their credit card mandates as an amendment to the GENIUS Act, but did not succeed.
Sens Durbin and Marshall’s credit card mandates are just as bad as the Durbin Amendment, and in some ways is even worse. It will give substantial powers to the Federal Government to essentially run the credit card system. Big retailers would prefer the Fed to run the credit card system to limit competition further, and Sen. Durbin is doing his best to fulfill their wish list before he retires.
Just like with the Durbin amendment, consumers carry the cost of these types of mandates. If this new bill passes, it will end credit card rewards programs and be yet another way the government is taking money from your wallet. But the average voter may not know why their ability to earn miles or points vanished overnight.
I wish sometimes that we could see a clear picture of how much the government taxes us, both seen and unseen. Maybe a printout each year of our salary and deductions for every distortion in the market, every tax, every fee, every extra expense for businesses. It’s a pipe dream, but it would be helpful to see the true cost of laws and regulations like these.
Instead, we are left to expose these types of bills one by one and hope for the best. At the minimum, bills like these should get hearings open to the public, rather than getting through under the cover of more popular, must-pass bills. Keep vigilant this fall, especially during this shutdown, for last minute amendments to “must pass” legislation.