Did you know? The Patriot Post is funded 100% by its readers. Help us stay front and center in the fight for Liberty and support the 2021 Year-End Campaign.

Veronique de Rugy / January 7, 2016

Retailers Don’t Need Another Regulatory Handout

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-Ill., 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.

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-Ill., 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

Start a conversation using these share links:

Who We Are

The Patriot Post is a highly acclaimed weekday digest of news analysis, policy and opinion written from the heartland — as opposed to the MSM’s ubiquitous Beltway echo chambers — for grassroots leaders nationwide. More

What We Offer

On the Web

We provide solid conservative perspective on the most important issues, including analysis, opinion columns, headline summaries, memes, cartoons and much more.

Via Email

Choose our full-length Digest or our quick-reading Snapshot for a summary of important news. We also offer Cartoons & Memes on Monday and Alexander’s column on Wednesday.

Our Mission

The Patriot Post is steadfast in our mission to extend the endowment of Liberty to the next generation by advocating for individual rights and responsibilities, supporting the restoration of constitutional limits on government and the judiciary, and promoting free enterprise, national defense and traditional American values. We are a rock-solid conservative touchstone for the expanding ranks of grassroots Americans Patriots from all walks of life. Our mission and operation budgets are not financed by any political or special interest groups, and to protect our editorial integrity, we accept no advertising. We are sustained solely by you. Please support The Patriot Fund today!

★ PUBLIUS ★

“Our cause is noble; it is the cause of mankind!” —George Washington

The Patriot Post is protected speech, as enumerated in the First Amendment and enforced by the Second Amendment of the Constitution of the United States of America, in accordance with the endowed and unalienable Rights of All Mankind.

Copyright © 2021 The Patriot Post. All Rights Reserved.

The Patriot Post does not support Internet Explorer. We recommend installing the latest version of Microsoft Edge, Mozilla Firefox, or Google Chrome.