This year marks the 15th anniversary of the atrocious and wildly anti-consumer Dodd-Frank Act, a law purportedly passed to protect consumers and create a more secure and financially stable banking system, but which in truth has led to accelerated banking mergers, less competition in financial services, and higher costs and fewer conveniences for consumers.
By far the most costly and harmful ingredient in the malodorous Dodd-Frank gumbo is the Durbin Amendment, which injected government price controls into debit card interchange fees, leading to consumers losing billions of dollars in debit card benefits and rewards while providing retailers an unearned windfall in revenue. One would think that the government may have learned from this miscalculation, and perhaps even lean toward the direction of wisdom to repeal this financially hostile regulation. But the sort of everyday wisdom by which most Americans are required to live is rarely sketched into the blueprints of our nation’s architects of bureaucracy, and their plans for the newest addition to the Dodd-Frank fortress of failure highlight their commitment to ill-conceived and anti-consumer government intervention into Americans’ financial affairs solely to assert their power.
Last year the Federal Reserve introduced a rule – yet to be implemented – that altered Regulation II (Reg. II) which sets the standard for the manner in which it regulates the debit card interchange. Along with this plan the Fed further proposed more severe price caps on various components of the exchange pricing structure. This will be Durbin all over again, ultimately leading to higher costs and fewer conveniences for banking customers, with no ascertainable benefit in the bargain.
Credit and debit cards are, of course, the products of the free market and provide an invaluable service and convenience that are wildly popular with both vendors and consumers. Over time, these financial products have led to numerous innovations and enhanced security to become the very foundation of steady growth in the US, and indeed global commerce.
The Fed’s proposed rule serves absolutely no purpose that anyone can point to, least of all those proposing it. The Fed itself has stated that it “cannot determine at this time whether the potential benefits of the proposal to consumers exceed the possible costs imposed on consumers and financial institutions.” Amazingly, the Fed knows the rule will impose costs on consumers and financial institutions, yet it can’t calculate whether its own actions will help or hurt consumers. In the real world outside of Washington, DC there is no business, no doctor’s office, no pilot, no chef who would engage in an activity with known costs and dangers without first ascertaining the benefits.
We know with certainty, as we learned from Durbin, enacted in 2011, that arbitrary price caps on financial services force cost-cutting measures that invariably result in fewer services in some areas, and higher fees in others. It also tightens access to credit and banking services that hit low-income Americans the hardest. In this instance the Fed’s interference would also siphon resources crucial to maintaining and updating a secure interchange at a time when digital criminals around the globe are becoming more innovative and persistent in their attacks on digital assets. Transactions and financial holdings in the hundreds of billions of dollars would be under constant stress from banks not having the proper resources to prioritize security to the extent required. Our entire financial system will remain on edge, deftly aware that there may be only a few more widely publicized breaches of Americans’ highly sensitive financial data to crater trust in our nation’s banking system.
There are further violations regarding this rule’s implementation, with the Fed claiming its biennial reviews of the interchange fee cap are not subject to the lawful and customary notice and comment period, which allows interested parties and citizens themselves to review an agency regulatory proposal and make a comment prior to its implementation. Nobody has yet to find, least of all the Fed, a grant of congressional authority to make unilateral changes to the interchange in this manner.
In short, the Fed’s proposal to amend Reg. II is not only unjustified, but is marinating in evidence it will visit the same harmful outcomes upon consumers as Durbin has done. It will make digital transactions less secure, will lead to higher banking costs elsewhere, and reduce innovation, competition, and convenience, hurting not only US consumers and commerce, but undermining our nation’s place as the world leader in an increasingly competitive if not combative global economy.
