Tax Reform Isn’t the Only Way to Pad Our Pockets — So Would Nixing Durbin Provision
As tax reform looms, by far the largest catchphrase in Washington is “put more money in people’s pockets.” These buzzwords are driving the agenda on both sides of the aisle, from President Donald Trump to House Speaker Paul Ryan, and from House Budget Chairman Rep. Diane Black, all the way to the Democratic Party’s own platform.
So Washington apparently agrees on something. And even though the details are far from worked out, at least lawmakers recognize the priority of giving average Americans an income boost. And the timing couldn’t be better, as average wages have largely stagnated since 1999.
Another promising development comes courtesy of Trump’s onslaught against federal regulations. Lately, he’s been on a tear, voiding 16 regulations for every new one enacted, unshackling the economy by $23 billion per year in burdensome costs that are ultimately paid by businesses and consumers.
Given Washington’s unified declarations of putting more money in our pockets, it’s downright confounding that leaders have so quickly abandoned an easy fix of bad legislation that has saddled consumers and their financial service institutions to the tune of approximately $42 billion in higher costs and fees since the Dodd-Frank Act passed in 2010. A last-minute add-on to the Dodd-Frank Act, the Durbin amendment recently celebrated its seventh anniversary with a cake that leaves consumers no icing, but plenty of stale crumbs.
The amendment’s proponents promised that it would save consumers money by capping debit card interchange fees. Businesses and their banks pay these fees to electronic payment network providers for processing transactions. By lowering these fees, it was assumed that merchants would pass those savings onto consumers.
But we all know what happens when you assume. Even worse, it actually harms consumers.
Once interchange fees were capped, banks began looking for ways to recoup the $6 billion to $8 billion in lost annual revenue, with disastrous consequences that were the direct opposite of what Durbin proponents promised.
The number of banks that offer free checking accounts fell by 50 percent between 2009 and 2013. Researchers also found that both the minimum monthly dollar amount required for a bank account to remain free, and average monthly fees doubled during approximately that same time period. These increases in fees and the loss of access to free checking accounts led to approximately 1 million more people becoming unbanked, most of whom are low-income.
And while consumers (especially the less affluent) are getting punished with fewer options, many large retailers are receiving significant cost reductions, leading to a transfer of $1 billion to $3 billion annually from low-income households to large retailers and their shareholders, according to a study from George Mason University.
By every measure, Durbin takes money from our pockets, the exact opposite of what it promised, and it’s especially painful to the most financially vulnerable. Yet when Washington had a clear path to deep-six this income-draining legislation earlier this year, they took a pass and went on vacation.
While it’s heartening that Washington is now singing from the same songbook with promises to put more money in our pockets, the tune will remain hollow if they don’t get serious about axing a costly and budget-busting law like the Durbin amendment. If the Hill has the will to promote tax reform and cheer the elimination of costly and burdensome regulations, then they can certainly find the will to include Durbin in the mix and make a real difference in putting billions back into our pockets.
Matthew Kandrach is president of CASE, Consumer Action for a Strong Economy.