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A new Congress has been sworn in and a new president inaugurated. As with any changing of the guard in Washington, D.C., there will be significant policy shifts, many of which are happening very quickly. One clear priority of this new administration is rolling back unnecessary government regulations that do nothing to help consumers and have not worked as intended.
As Congress looks for ways to strengthen our nation’s economy and streamline regulation, the No. 1 priority should be to repeal the Durbin Amendment to the Consumer Financial Protection Act of 2010. Slipped into the bill in the dead of night, this amendment put a cap on debit interchange fees in financial transactions, under the guise of making electronic payments more affordable for merchants, who promised they would pass the savings onto consumers. These promises have come up very short, and have led to negative consequences for consumers, low- to moderate-income bank customers, and small community financial institutions. Once the actual results of this bill started to manifest, a repeal effort began to show strong bipartisan opposition in both houses of Congress.
Corporate retailers have pocketed an additional $8 billion a year in windfall profits since the Durbin Amendment was enacted, but the prices of everyday goods have stayed static, or even risen over the last six years. That adds up to $42 billion in profits for big-box retailers since this legislation passed, but where are the savings for the consumer?Instead, retailers are saving huge amounts of money thanks to these price controls.
In the last six years, have the costs of everyday goods really gone down? Surveys show that most Americans don’t feel they have saved any money on products from big-box retailers. Last summer, consumer research firm Phoenix Marketing International conducted a survey of almost 2,000 shoppers who were asked if they had noticed a drop in prices at large stores; 92% of consumers surveyed said no. Polling by Morning Consult had a similar result: 94% of respondents said they had not seen prices drop since the Durbin Amendment passed. Retailers have not held up their end of the deal and are not passing on savings to the consumer.
To add insult to injury, consumers are actually getting gouged twice because of the Durbin Amendment. Because retailers aren’t paying their fair share of transaction fees, banks and financial institutions now have less flexibility to offer incentives like debit rewards programs and free checking for their members, the very people who shop at the big-box retailers. Low- to moderate-income customers have been hit the hardest, many of whom rely on free checking to keep their bank account open. Rewards programs that give people some extra spending money is a perk that can go a long way for those who don’t have a lot. Perhaps that money would go even farther if the stores that promised to reduce prices actually kept their promises.
Small merchants, another group this legislation was intended to benefit, are seeing their costs rise as well. Before the Durbin Amendment, interchange fees were negotiable, which was a good thing for mom and pop stores. But government regulation as dictated by the Durbin Amendment has set a floor as well as a ceiling for these fees, meaning that some small retailers are paying more for these transactions now than they ever did before the law was drafted. It seems like every party the Durbin Amendment was supposed to benefit has instead gotten the short end of the stick.
Members of Congress, such as former House Financial Services Committee Chairman Barney Frank, expressed concerns about the Durbin Amendment going in, but the rhetoric and promises from the retailers won the day, and a government giveaway scheme became public policy.
Retailers are saving billions while keeping prices the same; low- to moderate-income families are losing much-needed financial incentives; and small merchants are being used as pawns. From the beginning, there has always been the will in Congress to address this issue; I hope that in the 115th Congress there will also be the votes to repeal the Durbin Amendment and restore the free market in our financial system.