Published June 04, 2010
While you were preoccupied with the oil spill, the Middle East crisis, the unemployment rate, and everything else in the news, the Senate has been trying to slip a fast one by you. This time, it has to do with your everyday purchases that you make on your debit cards. The changes may sound technical and innocuous when described by the author of the amendment to the financial industry regulation bill, Sen. Dick Durbin (D-Ill.), but peel back the layers and here’s what we’ve got:
The amendment would make the Federal Reserve Bank dictate debit card “interchange rates.” What does that mean? Well, an interchange fee is money that a retailer's bank pays your bank when you use your credit or debit card at their store.
If the smaller financial institutions didn’t have this revenue source, they say it would be very difficult for them to provide basic financial services for their customers. Consumers would either be at the mercy of the large banks that Congress is supposedly trying to rein in, or they would have to rely on less secure forms of payment such as cash and checks.
Small banks are the least prepared to absorb anything other than a moderate reduction in interchange fees Any reduction in these fees leaves them with no choice but to shift costs to consumers.
Much of what you’ll find in the bill creates legitimate consumer protections. Durbin’s amendment to the bill, however, would do the opposite. Imagine you're planning your monthly budget -- you can take anywhere from 2 to 6 percent right off the top. Retailers will be allowed to add a special charge to your bill if you decide to use your debit card…and given that option, don’t you think they’ll do that?
Other consequences: you can kiss that no-fee checking account goodbye. Your rewards program? It probably won’t have much value if this amendment remains intact.
The big retailers sold the fees as something that would be passed along to consumers in the form of lower prices. Right…and where’s that bridge they want to sell you?
History shows us that price controls never work. Yet, the left keeps trying to impose them. The truth is the likely result of this amendment is a large-scale transfer of the costs from the big merchants to you.
If you’re still not that concerned, just ask our friends Down Under what they think as similar legislation passed in Australia seven years ago. Retailers began tacking on extra fees for consumers paying with plastic. Far from benefiting from lower prices, Australian consumers find that they’re paying more at the retail counter than ever before.
The problem with this type of legislation is that once the change is made, it's baked in the cake and you can’t take out a single ingredient. With everything else going on in the world, something like this can’t just happen without any debate. So if you want something like the Durbin amendment not to become law, it’s time to make a fuss.
Fox Forum is on Twitter. Follow us @fxnopinion.