Next week marks the anniversary of the Senate’s passage of the onerous regulatory failure that is Dodd-Frank. Dodd-Frank is responsible for countless economic woes; however one in particular deserves special mention in light of the Senate’s passage of the Marketplace Fairness Act. An amendment passed with Dodd-Frank by Senator Dick Durbin (D-Ill) severely limited what banks and credit unions are permitted to charge retailers for processing debit card transactions. Sen. Durbin claimed that "small businesses and their customers will be able to keep more of their own money," due to the amendment. Yet in reality, the amendment was nothing more than a gift to large retailers, who have pocketed $8 billion dollars from these prices caps without passing savings on to consumers.
Debit card fees are paid by merchants to banks for the processing of consumer transactions. Merchants are the entities that benefit from being able to process these fees-they can accept payments from consumers who do not carry cash and process transactions from them in milliseconds. Therefore it is logical that they are responsible for paying the costs of the card transactions-or at least they were prior to Durbin’s amendment. The amendment’s capping of what banks are permitted to charge for card transactions has cost regional banks one-third of their revenue in some cases. Even those exempt from the price caps are hurting, for they must still function in a market harmed by the caps. In a letter to Congress, organizations representing community banks and credit unions noted that supposedly exempt institutions are still losing revenue.
But those most harmed by Durbin’s handout to retail merchants are consumers. In 2009, the year before the Durbin amendment and Dodd-Frank was enacted, 76% of banks offered free checking with no minimum balance required. As of November 2012, only 39% of banks still did so. And the lower prices that Durbin and others claimed would materialize as retailers had to pay lower transaction fees? Despite pocketing around $8 billion, retailers have yet to pass significant savings on to consumers.
That Senator Durbin essentially doled out billions to large retailers should come as no surprise. He has consistently shown himself to be an advocate for corporate welfare rather than the consumers and small businesses he claims to help. The recent passage of the Durbin sponsored and ridiculously named Marketplace Fairness Act is an excellent example. MFA is touted as a way of evening the playing field between mom and pop retail stores and online sellers. Yet just as with Senator Durbin’s Dodd-Frank amendment, the legislation would not accomplish its stated purpose. Instead, it will devastate small online sellers and implement a complicated, dangerous system of taxation that is in direct violation of the physical presence standard we have always followed.
Unfortunately the negative repercussions of Dodd-Frank are not limited to Senator Durbin’s amendment. In fact the legislation has failed so spectacularly that even liberals such as former Democratic Senator Ted Kaufman of Deleware have called for its correction. Kaufman, speaking at a conference on large financial institutions May 1, blamed financial firm lobbyists for the largely ineffective regulations.
The anniversary of Dodd-Frank is an opportunity to look back and perhaps correct the failed regulatory system that is currently in place. Senator Durbin’s championing of big-box retailers at the expense of consumers and small businesses is sadly not unique in politics today. In economic times that remain bleak, consumers and small businesses need free market solutions, not corporate handouts.