By Ron Nate
Professor of economics at BYU-Idaho
The unemployment rate is currently 8.3 percent, there are about 200,000 homes in the foreclosure process, and we’re still in a murky Afghanistan war, among other problems. So, what are Sen. Dick Durbin, a Democrat from Illinois, and other liberal-minded legislators trying to do? Yup, you guessed it; they want to tackle the contrived “problem” of high credit card transaction fees. Brilliant.
There is little more dangerous today than a well-meaning or ignorant politician who looks at a market outcome and thinks that things are not as they should be. Beware of the economics neophyte wielding a regulatory sword. The only thing getting slain is your wallet.
You may recall last year that Durbin and his comrades were duped into thinking that debit card swipe fees were a national crisis. Gasoline retailers, big-box chain stores and convenience stores convinced key legislators (Durbin among them) that banks — today’s villains of choice — were ripping off consumers with high, hidden swipe fees. It turns out that the only things hidden were the ulterior motives of the retail special interests tugging at Durbin’s sleeves.
After narrowly passing his “Durbin Amendment,” a price control on debit swipe fees, consumers still have yet to see any cost savings; all the while the retailers have pocketed over $1 billion in profits extorted from the banks via the aid-and-abetment of the federal government. Despite the abject failure of the policy to achieve its stated goals — lower consumer prices — Durbin is doubling down on his stupidity by again kowtowing to the same retail special interests.
He is now proposing another price ceiling on swipe fees, but this time on credit card usage. The retail special interests, specifically the National Association of Convenience Stores (NACS), contend that credit card transaction fees have risen disproportionately to retail prices. That’s ironic, considering that the debit swipe fee cap is a key reason for banks to increase other fees.
It’s as if they’re saying, “Thanks for the billion, now let’s have another.” And class warrior Durbin is only too eager to oblige. Consumers should beware. “Durbin Amendment II” will not reduce your prices. What you can expect, however, is for banks to respond the only way they can in order to remain profitable. Banks will have to raise other fees, reduce interest rates they pay on your deposits, raise interest rates that you pay on credit cards and other loans, and/or reduce services available to consumers.
Contrary to liberal opinion, there are in fact costs to providing financial services (including credit cards), and with reduced revenues, banks can no longer offer the same services. So, while Durbin and the liberals polish the apples of the retailers, it’s the consumers who get shined.