Sen. Richard Durbin, D-Illinois, recently sent a letter to Federal Reserve Chairman Jerome Powell demanding the Fed look into debit card fees on businesses that have become more common during the COVID-19 crisis.
Powell should give the letter all the respect shown to a grocery store advertising flyer or a letter from Publishers Clearing House and toss it in the trash.
The letter, which is co-signed by Democratic Congressman Peter Welch of Vermont, claims "diminishing competition in the online electronic payments marketplace" is "costing American merchants potentially billions in excessive fees."
Serving as Congress' debit card cop is nothing new for Durbin. The Illinois Democrat famously sponsored what became known as "the Durbin Amendment" to the Dodd-Frank Wall Street Reform and Consumer Protection Act. The legislation capped fees retailers pay banks when customers use a debit card.
But Dodd-Frank rules also apply to aging PIN-based debit networks that require a customer to enter a PIN at checkout.
When retailers accept a debit card in person, and a customer enters a PIN, the transaction is carried out on antiquated technology developed in the 1960s. There are dozens of network options shared by hundreds of debit card issuers operating under socialist-style price controls concocted, in part, by Durbin.
Online purchases and sales made with contactless payments like mobile wallets and apps have skyrocketed during the coronavirus pandemic. These types of payments operate using state-of-the-art secure technologies that leading payment networks and banks invested billions of dollars to develop.
In fact, those "excessive fees" Durbin and Welch claim are plaguing retailers are actually costs associated with the opportunity to sell goods and services using innovative "card on file" online networks.
Instead of spending money and time developing online, smartphone and other forms of payment systems, some retailers and financial institutions realized it would be easier to simply get a free ride on existing ones. So retailers began lobbying Durbin and others in Congress to pass regulations to force companies like Mastercard, Visa and several large banks to route competitors' transactions through their networks at below-market prices.
Businesses that refused to invest in new payment technologies — and that don't want to pay their fair share to use the services of companies that did — now want the government to give them access to the systems for free. It's Capitol Hill rent-seeking at its most disheartening.
The COVID-19 pandemic has made life difficult for businesses, and government should take steps to reduce costs and regulatory burdens faced by employers. But effectively stealing the technology payment companies have invested billions of dollars to create in order to save retailers and service providers a few pennies here and there is unfair, unethical and un-American.
Durbin's scheme to penalize businesses that made financial transactions possible while face-to-face purchases were not safe, responsible or even legal is a disastrously dumb idea. Mandating that payment companies subsidize their competitors by forcing them to route rivals' transactions at rock bottom rates would take away any incentive for investing in the next generations of payment innovations.
According to a Wall Street Journal article, the Fed is "planning to respond" to the lawmakers' letter bemoaning costs associated with "card-not-present" transactions. Powell and the Fed should respond by recommending that Durbin and Welch stop being pawns for companies that would rather steal a competitors' innovations than invest and compete.
Drew Johnson is a senior fellow at the National Center for Public Policy Research. Read Drew Johnson's Reports — More Here.
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