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Durbin Amendment Damage Grows

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Unread 03.02.12, 03:48 PM
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Durbin Amendment Damage Grows

On 03.02.12 12:33 PM posted by Mary Bidgood

Remember when last September Senator Dick Durbin (D–IL) claimed that his contribution to the Dodd–Frank financial regulation statue—“the Durbin Amendment”—would benefit consumers? Well, more evidence has surfaced that his price-control regulation is costing consumers more and more money.

According to a study by Javelin Strategy and Research reported by Bloomberg on Wednesday, checking account fees have soared by 21 percent in the past six years. Javelin specifically singles out the Durbin scheme and other onerous regulations imposed on financial services as causing much of this increase.

Meanwhile, The Wall Street Journal reported Thursday that Bank of America and Chase are eyeing new checking account fees to make up for the $12.2 billion that banks are estimated to have lost to the recent flood of regulation.

The Durbin Amendment took effect last October 1 and limits the amount that banks can charge retailers to process debit card transactions. Popular among major retailers, the provision directed the Federal Reserve to impose a price cap per debit transaction, which was subsequently set at 24 cents (on average). Consequently, retailers are paying banks about 45 percent less than they did prior to the rule.

Not surprisingly, banks have sought new sources of revenue to make up for the losses—just as critics of Durbin predicted. For example, Heritage’s David John correctly predicted last year that, faced with sharply lower profits from debit card use, “card issuers are almost certain to react by doing one or more of the following: imposing an annual fee on debit cards; raising other fees that would be paid by consumers; or reducing the interest rates paid on consumer deposits. While such a response would hurt all consumers, it would especially damage those with moderate and lower incomes.”

Congress needs to understand that consumers are being hurt by Durbin’s price controls—regardless of the Senator’s intentions. Services that once were free now cost many people money. It’s time for Congress to repeal this harmful provision.

Mary Bidgood*is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm

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