Tags: dodd-frank | durbin

Durbin Legislation Will Slam Small Businesses

Friday, 18 Mar 2011 07:45 AM

By John Berlau

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In his post, “Durbin and Federal Reserve Plot to Fix Prices and Harm Consumers,” RedState.com Editor Erick Erickson blasts the price controls on debit card retailer interchange fees in Dodd-Frank’s Durbin Amendment.

In addition to noting the harms to consumers as costs of debit card processing are shifted to them from retailers — harms such as loss of free checking and imposition of new fees that have set off bipartisan alarms — Erickson lays out the principled conservative case against these price controls and all price controls.

If nothing is done, the Federal Reserve’s price controls stemming from the Durbin Amendment go into effect in July, and banks and credit unions will to lose up to 90 percent of the revenues they make from the interchange fees they charge retailers. These losses will almost certainly be shifted to consumers as both small and large financial institutions have said they will have to raise fees, in some cases to stay solvent.

Although smaller banks and credit unions are technically exempt from some portions of the bill, both the Independent Community Bankers of America and the Credit Union National Association have said the exemptions are basically meaningless.

But on Tuesday, hope arrived in the form of the bipartisan Debit Interchange Fee Study Act, which delays implementation for two years upon further study of the price controls’ potential effects.

According to DigitalTransactions.net, a bipartisan group co-sponsored Tester’s legislation, including Sens. Bob Corker, R-Tenn.; Jon Kyl, R-Ariz.; Ben Nelson, D-Neb.; Tom Carper, D-Del.; and Pat Roberts, R-Kan.

Erickson calls on all Republicans to get on board. “Standing idly by, is an endorsement of Obama Administration price controls and Dick Durbin’s leadership,” he writes. “It is also an abdication of conservative principles and responsibility.”

Unfortunately, when Senate Majority Whip Dick Durbin, D-Ill., introduced his amendment to Dodd-Frank, 17 Senate GOPers committed a much worse sin than “standing idly by.” They actually voted for these price controls! Here are the 17 Republicans who betrayed core free-market principles and — a warning — there are some surprises beyond the usual GOP squishes.

George Lemieux, R-Fla. (replaced by Marco Rubio in 2011)
Saxby Chambliss, R-Ga.
Johnny Isakson, R-Ga.
Mike Crapo, R-Idaho
James Risch, R-Idaho
Richard Lugar, R-Ind.
Charles Grassley, R-Iowa
David Vitter, R-La.
Scott Brown, R-Mass.
Susan Collins, R-Maine
Olympia Snowe, R-Maine
Roger Wicker, R-Miss.
John Ensign, R-Nev.
Richard Burr, R-N.C.
Lindsay Graham, R-S.C.
John Barrasso, R-Wyo.
Mike Enzi, R-Wyo.

These 17 Republicans provided the margin of victory for the Durbin Amendment to pass. Ten Democrats as well as Joe Lieberman, hearing the cries of community banks and credit unions in their states or maybe just genuinely concerned about the measure’s effect on consumers, voted no.

If the GOP had held together, even with its small numbers in the last Senate, these price controls could have been stopped.

Looking at the above list, the usual suspects — The “Maine sisters,” Scott Brown, Dick Lugar, and Lindsay Graham were of course well represented. But why did some otherwise rock-ribbed conservatives, who correctly blast government controls in Obamacare and other laws, suddenly back this Dodd-Frank provision setting price controls on what banks can charge retailers?

It could have been simple ignorance about what the bill would do. The last Congress was famous for ramming measures through at rapid pace without debate or even much discussion. Yet these guys and gals should have had a clue that something was amiss because a) Durbin was the main sponsor, and b) the language required the Fed to set prices that were “reasonable and proportional to cost.”

Whatever the reason, there is even less of an excuse now to back these price controls. The Federal Reserve is setting a price cap under which banks can never charge retailers more than 12 cents per transaction, no matter how large or how much risk the transaction carries. That is why Chase and other banks are saying they may put a limit of anywhere to $100 or $50 on each debit card transaction.

By its own admission, the Fed notes that these price controls are below-cost and banks will lose money on the retailer side of each transaction. The Fed justifies this by pointing out that “the interchange fee standard would not limit the ability of an issuer to earn revenue from other sources, such as by charging fees to its cardholders.” How pro-consumer, to force issuers to charge more fees to their cardholders!

Now, even some Democrat Dodd-Frank supporters have pulled back, correctly perceiving that this measure and the Fed rule implementing it make a mockery of their claim that Dodd-Frank was a victory for consumers over special interests.

Even former House Financial Services Committee Chairman Barney Frank, D-Mass., criticized the Fed on CNBC for setting the fees “too low.” And some of the most progressive members of the House including Reps. Lynn Woolsey, D-Calif.; Carolyn McCarthy, D-N.Y.; and Dale Kildee, D-Mich.; recently wrote to the Federal Reserve, “We urge you to delay this proposed rule until Congress has time to properly evaluate the far-reaching direct and indirect implications it will have on our constituents.”

It would be a supreme irony, not mention a damn shame, if what could be the first successful effort to roll back a portion of the mammoth Dodd-Frank were to be sabotaged by Republicans beholden to socialism for giant retail corporations.

Note: If you want to communicate on this issue with your member of Congress, go to the Don’t Make Us Pay site, which is set up with a sample letter to send. It was set up by a variety of financial institutions, including community banks and credit unions.

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