In a disappointing turn of events, Congress has decided to strip out crucial language from the Financial CHOICE Act that would have righted a serious wrong done to consumers over the last seven years.
Last month, the House Financial Services Committee voted to include language in the bill to repeal the disastrous Durbin amendment, and do away with price controls on debit interchange fees that have provided retailers $42 billion in profit since 2011. These same retailers promised to lower prices for their customers with the additional revenue, but those savings never materialized and in many cases prices have been increased. Tacked on to the enormous Dodd-Frank bill in the 11th hour, the Durbin amendment was full of empty promises that were never fulfilled.
Every time there is a retailer data-security breach, credit unions step forward to make their members whole. A NAFCU survey found that its member credit unions paid an average of $226,000 each in costs associated with retailer data breaches in 2014. Meanwhile, large companies like Target might lose less than one-tenth of one percent of their annual sales due to a data-security breach; and if they want to recoup expenses, they can always raise prices. Credit unions, as not-for-profit, member-owned institutions, have no such remedy.
It’s time to get a national data-security standard in place for retailers. And to do that, we need everyone in the industry – trades, credit unions and the more than 107 million credit union members nationwide – to raise their voices and make Congress take action.
The Financial CHOICE Act, which begins to untangle the web of harmful rules that Dodd Frank put in place, is likely to pass the House this week. That’s very good news for community banks and credit unions, but it doesn’t mean Congress’s work on financial reform is done.
One CHOICE Act provision, repeal of the Durbin amendment, was left behind. That’s why, after wrapping up the CHOICE Act, the House Financial Services Committee must go back and pass Durbin amendment repeal again. It’s already done so in two separate congresses—because it’s the right thing to do. Repeal will help the community financial institutions that are the backbone of our economy. And it will prevent the retail industry from continuing to pick the pockets of consumers.
In what American Commitment President Phil Kerpen called “a gutless sacrifice of principle,” last week the House GOP capitulated to relentless lobbying from big retail interests by stripping language repealing price controls on debit card use from the Financial CHOICE Act.
This is not only wrong because the effect of the price controls has been to increase costs for those on the margins of the banking system – the underbanked – but because price controls are always harmful. They distort the normal working of supply and demand and generally benefit most those whom they were not intended to help in the first place. Thus, for example, the debit card price controls were purported to help small merchants, but in many cases they saw their costs go up, as they lost access to deep discounts they had before the price controls were introduced (the price ceiling actually became a floor.)
Business owners expect conservative members of Congress to protect them from the federal government. They particularly rely on conservatives for protection against government price controls.
No self-respecting business owner wants the federal government telling him what price he can charge. Business owners – not federal bureaucrats – best understand what prices they need to charge to earn a living and to make their investments worthwhile.
CEI financial policy expert Iain Murray criticized the House for stripping out repeal of the Durbin amendment yesterday from the Financial CHOICE Act.
The House Republicans’ capitulation on Durbin repeal is a slap in the face for lower-income Americans. All the evidence suggests the cap on debit card interchange fees resulted in a windfall for retailers who failed to pass on savings to consumers. In fact, many of those consumers were hit by higher bank fees as banks sought to replace the lost income stream from processing debit card transactions. The result has been a net loss of around $25 billion a year for American consumers, most of it born by low-income households. The House had a chance to right this wrong, and they blew it.
NTU’s Executive Vice President, Brandon Arnold, responded to the repeal of the Durbin amendment:
National Taxpayers Union is extremely disappointed by the decision to remove language from the Financial CHOICE Act that would have repealed price controls on debit card swipe fees. While its supporters claim that the Durbin Amendment is a pro-consumer measure, it has instead been little more than a government-imposed windfall for the retail industry.
The Electronic Payments Coalition (EPC) promised to keep fighting for repeal of the Durbin amendment today and will continue to work with Congress to stop this failed policy.
“The House Financial Services Committee voted twice in back-to-back congresses to repeal the Durbin Amendment because members know this is a crony handout that has generated unearned billions for the Big Box retailers and heartburn for their customers,” said Molly Wilkinson, executive director of the EPC. “The Durbin price controls hurt consumers, community banks and credit unions and even small merchants. This is a bad policy, and we, the Electronic Payments Coalition, are committed to repealing it.”
Since the policy took effect in 2011, the special-interest Durbin amendment has allowed merchants to collect more than $42 billion they promised to pass along to their customers. In that time, merchants have raised prices while banks and credit unions have lost revenue used to serve their customers and members, respectively. The policy’s failures have been confirmed by multiple studies and consumer surveys over the past six years, underscoring the need to end the Durbin amendment.
Those failures are the reason two separate Congresses took action in the past year to repeal this policy, keeping the amendment in the spotlight and stressing its failures. In September 2016, the 114th Congress’s House Financial Services Committee (HFSC) passed the CHOICE Act of 2016, which included Durbin amendment repeal. In May, the HFSC of the 115th Congress voted once again to end the provision as part of CHOICE 2.0.
To learn more about the Durbin amendment, click here.
New Morning Consult survey data released today confirms the need to end the Durbin amendment, with seven in ten voters unaware of having received a discount at the register since the policy went into effect. Across party lines, voters agree that if merchants aren’t passing along savings from the law, it should be repealed. To date, big box stores have pocketed $42 billion at their customers’ expense. The new polling data found nearly 70 percent of voters say these big box retailers like Target and Walmart are looking out for their own bottom lines, not main street interests.
“Time and time again, evidence shows the Durbin amendment has been a complete failure and the latest Morning Consult polling is no exception,” said Molly Wilkinson, executive director of the Electronic Payments Coalition (EPC). “For six years, big box retailers have broken their promises to lower costs, and consumers, small businesses, community banks, and credit unions are paying the price. Voters recognize the Durbin amendment for what it is: a price control that serves only to pad retailers’ bottom lines. It is time for Congress to act now to end this special interest policy.”
Despite proponents of the Durbin amendment—including big box retailers and special interests groups—saying it would help consumers and small businesses, only the largest retailers have seen any benefits from the policy. These large merchants have pocketed approximately $6-8 billion a year and, as evidenced in the survey, have failed to lower prices. This is in line with a Richmond Federal Reserve study that found only one percent of retailers have lowered their prices as promised since the Durbin amendment’s price controls went into effect. Additionally, by a 4-1 margin, voters say RILA and the other associations pushing to keep this government price control don’t protect main street interests.
EPC urges the immediate repeal of the Durbin amendment and asks Congress to support Section 735 of the Financial CHOICE Act.
Morning Consult, on behalf of the Electronics Payment Coalition, conducted an online survey of 1,970 registered voters from May 16-18, 2017. Results from the full survey have a margin of error of +/- 2%.
Robin Hood took from the rich to give to the poor. A pivotal piece of legislation bearing the imprint of Democrat Richard Durbin suggests the Illinois senator, by contrast, is a fan of “reverse Robin Hood economics” — that is, taking from less fortunate consumers to boost the profit margins of the nation’s largest retail chains.
Self-styled “progressives,” such as Durbin, always stress their compassion for the Average Joe, along with their antipathy toward private companies, who allegedly pay their employees as little as possible while charging their customers the highest prices possible. Most of these progressives, however, actually support terribly regressive economic policies, from high minimum wages to closed union shops to protectionist trade measures.
Four years later, the evidence against merchants continues to pile up. Four years of consumer research by Phoenix Marketing International (PMI) has found that consumers continue to say they are not seeing savings.