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At Walgreen, Renouncing Corporate Citizenship
In 2010, he introduced as part of the Dodd-Frank Act the so-called Durbin Amendment — which some people called the Walgreen’s Amendment — limiting the fees that banks are allowed to charge merchants for debit card transactions. In seeking support on the floor of the Senate, Mr. Durbin told his colleagues that the Walgreen chief had contacted him. “And he told me that when they look at the expenses of Walgreen’s,” Mr. Durbin said, “it turns out the fees that Walgreen’s pays to credit card companies is the fourth-largest item of cost for their business.” Given all of the benefits Walgreen has received over the years as a United States corporate citizen, it remains curious why Mr. Wasson would seek a new passport.
The consequences of the Durbin Amendment for American consumers
Most large retailers have seen significant cost reductions as a result of the Durbin Amendment, yet to date there is no evidence that those cost savings have been passed-through to consumers.
Dodd-Frank’s Durbin Amendment Drives Up Costs on Memorial Day and Every Day
Over the Memorial Day weekend, the Big Retail lobby created a dubious driving distraction. The Merchants Payments Coalition, whose members include retail giants like Walmart and 7-Eleven, took out a Business Wire press release warning motorists to “Get Ready to Be Side-Swiped by Your Bank’s Exorbitant Credit-Card Fees.” In reality, it’s rent-seeking retailers and allied politicians who are rear-ending American consumers on Memorial Day and every day through the price controls they pushed for in Dodd-Frank’s Durbin Amendment. Now, they are lobbying Washington to ram ordinary folks even more with policies that will make security breaches like that of Target more likely to happen. At issue are “interchange fees,” fees charged to merchants by credit and debit-card issuing banks and credit unions to process consumer transactions. Together with consumer payments, these fees finance the electronic payment infrastructure and technologies to fend of security threats. But ever since the Dodd-Frank financial … Continue reading
Appeals court upholds Fed’s debit card fee limits
A U.S. appeals court upheld the Federal Reserve’s controversial rules for debit card “swipe fees” on Friday, disappointing merchants who had argued the charges were too high. Businesses pay the fees to banks when customers use debit cards to purchase goods or services. The fees reimburse banks for costs involved in offering debit cards. At the instruction of Congress, the Fed in 2011 limited the fees to 21 cents per transaction. A U.S. district court in July 2013 agreed with a group of retailers that lawmakers intended the cap to be lower and overturned the Fed’s rule. The three-member panel of the U.S. Court of Appeals for the District of Columbia Circuit sided with the Fed on Friday, saying the law’s “ambiguity” gave regulators leeway to set a higher fee cap. “Because neither agencies nor courts have authority to disregard the demands of even poorly drafted legislation, we must do … Continue reading
Retailers have themselves to thank for lower Christmas sales
According to a study recently released by the Coase-Sandor Institute for Law and Economics, the Durbin Amendment has had a net cost to consumers of between $22 and $25 billion dollars. That’s the value of over ten million Kindle Paper Whites on Amazon.com, two million Play Station 4s, and six million LeapFrog Leap Pads (in case you were wondering). It’s also the total of what consumers will not be able to spend on loved ones and holiday expenses, thanks to increases in payment card costs.
We Didn’t Regulate Credit Cards, We Regulated People
I described the effects of the Durbin Amendment to the 2010 Dodd-Frank Act in addition to a general overview of why current levels of regulation hurt the economy. The Amendment gave the Federal Reserve the power to limit interchange fees, which they did at around 24c per transaction for “non-exempt” issuers. When the Durbin Amendment was first mooted, based on the Australian experiences, we predicted that none of the savings to merchants would be passed on to consumers and that it would bring an end to credit card rewards programs and free debit cards. Now, thanks to a study by David Evans et al. of the University of Chicago Coase-Sandor Institute, we know that that did happen, and that consumers are worse off to the tune of around $200 per household.
Stopping the Spread of Bad Ideas
The problem arises when politicians intervene to regulate the interchange rates that retail merchants pay. Regulating payment card fees has political appeal to elected officials who are told by retailers who claim to be speaking on behalf of consumers. These merchants tell the political class that if they pay lower, regulated interchange rates, they will pass those savings on to consumers. In country after country, the reality is quite different. Sure enough, retail merchants benefit from the lower fees. But those benefits are passed on to the retail merchants’ shareholders, not to consumers as promised. Consumers end up paying higher fees — either through “checkout fees” (surcharges at the register) or higher banking fees.
The Not-So-Friendly Sen. Dick Durbin Amendment
Price controls are never a good idea, yet they seem to be a staple of policymakers across the globe. Inevitably, they result in dislocations in the market that frustrate both consumers and producers. If prices are too low, shortages emerge leaving consumers in the cold and producers disinterested in serving that market. High prices create gluts, as unwanted goods sit on the shelves while producers are enticed to produce even more. So it should be no surprise that Sen. Dick Durbin’s (D-Ill.) attempt to control fees on debit cards has done little to help consumers, while the retailers who lobbied for the law are quietly pocketing billions. One study found that the Durbin Amendment transferred more than $8 billion from banks to retailers.
Global Economics Group Releases Study of Impact of Durbin Interchange Fee Caps on Consumers
The Global Economics Group issued a press release announcing a new study examining the impact of the Durbin amendment on consumers. The study finds that consumers will lose more than $22 billion as a result of interchange caps. Dr. David Evans, lead author of the study will be discussing his findings at an upcoming conference on the Durbin amendment in Washington D.C. on November 6.
Judge Leon’s Lawless Durbin Amendment Debit Card Decision
Since Judge Richard Leon issued his shocking decision on July 31 that called for even more draconian price controls under Dodd-Frank’s Durbin Amendment, some legal commentators have given the judge the benefit of the doubt. They concede the Durbin Amendment is bad law, but they say Judge Leon was correct in his interpretation of the amendment, which basically mandates the Federal Reseve not set price caps on what banks and credit unions charge for interchange fees on debit cards at any rate higher than retailers would like to pay them. These commentators, some of whom I respect a great deal, simply overlook the incredible sloppiness in Leon’s ruling in NACS. v. Board of Governors of the Federal Reserve. Leon’s decision is filled with unprofessional snark, misconstrues economic terms in the statute’s language and limits its research of “legislative intent” to the “intent” of one member of Congress who voted for … Continue reading
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