As early as next week, the House Financial Services Committee could vote on the Financial CHOICE Act, an important piece of legislation that will repeal and replace the job-killing Dodd-Frank Act. Written by free market champion Rep. Jeb Hensarling (R-TX), the bill is a major step forward toward reducing unnecessary and costly red-tape while reducing the risk of future TARP-style bailouts.
In addition to freeing up consumers and investors from the shackles of government micromanagement, the bill includes a provision to repeal the odious “Durbin Amendment,” another failed government experiment with the age-old quest to set price controls on goods and services.
When consumers use credit and debit cards, merchants like Walgreens and others have to pay a small “interchange fee,” which is essentially a small insurance policy that protects credit card companies in case consumers decide not to pay their bills. When retailers complained that the cost per swipe was too high, they turned to government for relief. Sen. Dick Durbin was more than willing to help his corporate friends and campaign contributors.
When the infamous Dodd-Frank Act came to the floor, Durbin offered his amendment to cap the fee to 21 cents plus 0.05% of the transaction each time a debit card is used to make a purchase. Durbin and his corporate allies claimed that if the fee was reduced, consumers would see a reduction in the price of goods.
Of course, such claims were nonsense. Card companies set the swipe fees at that price for a reason — it’s the minimum amount that was needed to prevent revenue losses from fraud. There’s no such thing as a free lunch, there’s only transfers of wealth. While Durbin’s price controls resulted in merchants paying less for fraud prevention, consumers were forced to pick up their tab in the form of higher banking fees.
As Margarette Burnette explained in NerdWallet, the Durbin Amendment has cost consumers an estimated $4 billion a year. Prices didn’t magically drop, as the store owners promised. Instead, things like insufficient-fund fees increased, inactivity fees on checking and savings accounts began, and monthly account maintenance charges were boosted – all to make up for the revenue lost on the merchant swipe fee.
Consumers shouldn’t have to bear the saddle for merchants. After all, it is the merchant who is voluntarily accepting credit and debit cards as a form of payment. They know that doing so has drastically reduced transaction times, resulting in more sales each month. The least they can do is contribute a few cents per transaction in order to stop fraud.
House Financial Services Chairman Jeb Hensarling deserves praise for his continued efforts to promote fairness and competition in the marketplace. Next week, Congress should follow his lead and repeal the Durbin Amendment to end this crony giveaway to corporate interests — a hidden tax on the American people.
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