Washington politicians have a unique way of naming legislation after what it undermines.
Take, for example, the Dodd-Frank law on Wall Street reform and consumer protection. The landmark legislation passed after the 2008 financial crisis affected almost every sector of the country’s financial services industry. While the legislation has undeniably reformed Wall Street, it has done a lot to harm consumers, not protect them.
Despite some of Dodd-Frank’s obvious drawbacks, some lawmakers are keen to expand on his failed policies.
One of Dodd-Frank’s well-intentioned mistakes was the 11th hour inclusion of the Durbin Amendment, which set price controls on interchange fees for debit cards. Interchange fees are charged to merchants by banks to cover the risk associated with the use of a card. Now lawmakers are trying to extend this failed policy to credit cards.
Controlling the prices on interchange fees for debit cards has meant less benefit to you. Only a few years after the law was passed, the number of banks offering free checking accounts had been halved. Instead of protecting clients, the Durbin Amendment rules have made it harder for young people and working poor to build a financial safety net.
A study from the University of Pennsylvania estimated that consumers lose $ 3 billion a year because of this policy.
Supporters of the amendment hoped the price controls would lead to lower prices for consumers, but a 2015 Federal Reserve Bank of Richmond study found that more than three-quarters of merchants had not changed their prices after the law. Worse yet, over 20% have actually increased their prices.
In turn, banks have had to increase the costs of their services to cover lost revenue. To accomplish this, banks are setting higher overdraft fees, increasing minimum balances, reducing access to free verification, eliminating debit card rewards, and charging higher maintenance fees.
Once again, government regulation to protect consumers has hurt them.
Nevertheless, some lawmakers still wish to extend these price controls to credit cards.
Families who have signed up for credit cards hoping to benefit from cash back and rewards programs will likely be disappointed to see these benefits downgraded or removed. The cost of getting a credit card would also increase, and your hopes for travel points or rewards at the gas pump would decrease.
Researchers estimate consumers could lose between $ 40 billion and $ 50 billion in rewards due to a price cap on credit card interchange fees. Say goodbye to your travel points, grocery deals, free gas tanks, or cash back rewards.
However, the direct benefits and lost rewards for consumers may not be the most worrying outcome. Our community banks, already over-regulated under the current approach, could lose up to $ 10 billion due to price controls. Community banks, often locally owned, are essential in providing loans to local businesses and are often more personal and adaptive in their approach to providing financial services in their area.
Across Kentucky, community banks are working closely with citizens to provide more unique services, often not available at large banks.
Rather than doubling down on a policy that hasn’t helped consumers, lawmakers could dramatically improve the situation for consumers by removing barriers to financial freedom. Too cumbersome and uniform price controls would again lead to less choice and benefit, no protection.
Jared Crawford is Media and Operations Manager for the Pegasus Institute. He can be contacted at [email protected]