Congressional Republicans, lead by Rep. Randy Neugebauer (R-TX), have taken a strong stand for consumers by pushing for the repeal of the Durbin Amendment. Enacted as part of the Dodd-Frank financial regulations bill in 2010, this amendment proposed by Sen. Richard Durbin (D-IL) capped the fees charged to merchants for customers using debit cards. Supporters claimed at the time that banks and other debit card providers were making massive profits from the interchange fees, and imposing price controls would lead to savings for consumers.
Six years later, it is clear the price controls on interchange fees have failed miserably, and consumers have enjoyed no savings as a result. The law costs consumers as well, an estimated $8 billion annually from increased bank fees that more than make up for revenues lost from decreasing interchange fees for non-exempt banks (those with more than $10 billion in assets) from $0.44 to $0.24. Right after Dodd-Frank was signed by Barack Obama, Bank of America announced it would make up for the expected lost revenue by imposing a $5.00 monthly fee on checking accounts for debit card usage. Many other banks followed sued, and free checking went from being almost universal nationwide to becoming quite scarce. The Durbin Amendment proves, once again, that price controls don’t work.
Christopher Versace, writing for Forbes, demolishes the notion that politicians can set prices for products and services better than the free market can, “Most economists and many conservatives in Congress are well aware that government price controls make for bad policy. They know that politicians are no more accurate at determining the price of goods than meteorologists are at forecasting the weather,” while pointing out that price controls invariably lead to shortages and economic crises.
Rep. Neugebauer has proposed a very sensible solution to this problem, H.R. 5465, a bill to repeal the anti-consumer Durbin Amendment. While Sen. Durbin has vowed, “Repeal of the Durbin Amendment will not happen on my watch,” House Financial Services Chairman Jeb Hensalring (R-TX) and other Republican members are the Neugebauer repeal bill.
“What the Durbin Amendment did do was artificially shift over $30 billion in revenue from one industry to another,” Neugebauer said. “Instead of promoting free market principles and technological innovation, such as enhanced data security capabilities, the Durbin Amendment was nothing more than a government action to manipulate the marketplace.”
Raging against debit card fees, or any other fees charged by banks, is popular target for politicians who think they can gain publish support taking another shot at banks and financial services providers. Attacks like this almost invariably lead to some form of price controls being proposed by do-gooder liberal politicians who claim to protecting the consumers while enacting regulations that are always quite costly to consumers, such as the Durbin Amendment.
While it’s not always to easy to defend what appears to be indefensible by appearing to be standing for the banks demonized by liberal politicians, Republicans are to be applauded to countering the perception and standing up against the true economic harm done to consumers by the Durbin Amendment. Consumers want a return to the days when they paid lower fees to the banks and had free checking services. If Congressional Republicans succeed in repealing the Durbin Amendment, those days will be back again soon.