Opinion

Financial regulation hits your wallet

Phil Kerpen President, American Commitment
Font Size:

Credit or debit?  It’s become a familiar part of the check-out ritual for retail transactions.  Many of us, even though we are using bank debit cards, choose the “credit” option, which is actually a debit transaction that runs over the same Visa or MasterCard network that processes credit card transactions.  There are lots of valid reasons for choosing “credit” but many big merchants want to take the “credit or debit” choice away from customers.

Regulations would mean lower fees for merchants but less choice for their customers.  And while such regulations have no conceivable connection to the housing bubble or the financial meltdown, they are hitching a ride on the so-called Wall Street Reform bill that will soon be voted on in the U.S. Senate.

The provision that would take away the choice of credit or debit is labeled “no routing restrictions” and shreds the legitimate private contracts that Visa and MasterCard have with merchants that assure customers the ability to choose how their transactions are processed.  Instead, within one year of the bill passing, new regulations would prohibit any “contract, requirement, condition, penalty” that would prevent merchants from choosing how every transaction is processed.

In effect, the federal government is tearing up legitimate contracts – that have served consumers very well – to allow merchants to choose “credit or debit” for us, based on what’s best for them.  It is terrible news for consumers who rely on the value-added features of their cards that are only available when transactions are routed over credit networks.  Perhaps the most familiar consumer perk is winning airline miles, shopping credits, or cashback points.  But many other consumer benefits are available for credit shoppers including fraud protection, a better audit-trail including a signature, and other features like integrated lines of credit and transaction-timing flexibility offered by some banks and credit unions.

To the extent some merchants still allow consumers to choose credit, the transactions would be subject to new federal price controls.  These price controls will reduce the transaction fees by as much as 90 percent, by requiring the fee be based on the “incremental cost incurred” by the bank or credit union that issued your card.  That might sound like great cost savings, but government cannot make things less expensive by imposing price controls without serious consequences, as we should have learned from Nixon-era wage-and-price controls.  When prices are artificially suppressed, the consequence is a precipitous drop in supply.  In this case, by pushing costs toward the marginal cost of an individual transaction, banks and payment networks are unable to justify the enormous capital expenditures necessary to build, maintain, and innovate.  They are also starved of cash for more routine operational expenses like staffing call centers.

These severe price controls, combined with the new routing power given to merchants, are designed to destroy the “credit” option and force all debit card transactions onto cheaper debit networks that don’t offer meaningful fraud protection or other valuable services.

Moreover the “incremental cost” language creates the precedent that price controls for network transactions should be set at or near the marginal cost of running the transaction, which ignores the enormous investment required to build, maintain, and support the underlying network. That is a very frightening precedent for every network industry from railroads to the Internet, which could have capital investment destroyed by applying the same regulatory model of pushing transactional charges toward marginal cost.

The new rules are in section 1075 of the massive Dodd-Frank Wall Street Reform and Consumer Protection Act, and were added on an unusual amendment vote on May 13.  The amendment, sponsored by Sen. Dick Durbin of Illinois, got 64 votes (60 were needed) including 17 Republicans.  The Republicans who supported the amendment put the interests of politically connected merchants ahead of their professed free-market principles, and the interests of consumers.

In effect, the federal government is, at the behest of merchants, overturning a market arrangement that has served consumers well.  And they are doing it inside a bill that is supposed to be a response to the financial crisis.  The Senate still has an opportunity to reject these provisions by voting no on the deeply flawed Dodd-Frank bill.  If the bill is enacted, repealing the debit card price controls should be included in any “fix bill” worthy of the name.

Mr. Kerpen is vice president for policy at Americans for Prosperity.

PREMIUM ARTICLE: Subscribe To Keep Reading

Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!

Sign Up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
Sign up

By subscribing you agree to our Terms of Use

You're signed up!
BENEFITS READERS PASS PATRIOTS FOUNDERS
Daily and Breaking Newsletters
Daily Caller Shows
Ad Free Experience
Exclusive Articles
Custom Newsletters
Editor Daily Rundown
Behind The Scenes Coverage
Award Winning Documentaries
Patriot War Room
Patriot Live Chat
Exclusive Events
Gold Membership Card
Tucker Mug

What does Founders Club include?

Tucker Mug and Membership Card
Founders

Readers,

Instead of sucking up to the political and corporate powers that dominate America, The Daily Caller is fighting for you — our readers. We humbly ask you to consider joining us in this fight.

Now that millions of readers are rejecting the increasingly biased and even corrupt corporate media and joining us daily, there are powerful forces lined up to stop us: the old guard of the news media hopes to marginalize us; the big corporate ad agencies want to deprive us of revenue and put us out of business; senators threaten to have our reporters arrested for asking simple questions; the big tech platforms want to limit our ability to communicate with you; and the political party establishments feel threatened by our independence.

We don't complain -- we can't stand complainers -- but we do call it how we see it. We have a fight on our hands, and it's intense. We need your help to smash through the big tech, big media and big government blockade.

We're the insurgent outsiders for a reason: our deep-dive investigations hold the powerful to account. Our original videos undermine their narratives on a daily basis. Even our insistence on having fun infuriates them -- because we won’t bend the knee to political correctness.

One reason we stand apart is because we are not afraid to say we love America. We love her with every fiber of our being, and we think she's worth saving from today’s craziness.

Help us save her.

A second reason we stand out is the sheer number of honest responsible reporters we have helped train. We have trained so many solid reporters that they now hold prominent positions at publications across the political spectrum. Hear a rare reasonable voice at a place like CNN? There’s a good chance they were trained at Daily Caller. Same goes for the numerous Daily Caller alumni dominating the news coverage at outlets such as Fox News, Newsmax, Daily Wire and many others.

Simply put, America needs solid reporters fighting to tell the truth or we will never have honest elections or a fair system. We are working tirelessly to make that happen and we are making a difference.

Since 2010, The Daily Caller has grown immensely. We're in the halls of Congress. We're in the Oval Office. And we're in up to 20 million homes every single month. That's 20 million Americans like you who are impossible to ignore.

We can overcome the forces lined up against all of us. This is an important mission but we can’t do it unless you — the everyday Americans forgotten by the establishment — have our back.

Please consider becoming a Daily Caller Patriot today, and help us keep doing work that holds politicians, corporations and other leaders accountable. Help us thumb our noses at political correctness. Help us train a new generation of news reporters who will actually tell the truth. And help us remind Americans everywhere that there are millions of us who remain clear-eyed about our country's greatness.

In return for membership, Daily Caller Patriots will be able to read The Daily Caller without any of the ads that we have long used to support our mission. We know the ads drive you crazy. They drive us crazy too. But we need revenue to keep the fight going. If you join us, we will cut out the ads for you and put every Lincoln-headed cent we earn into amplifying our voice, training even more solid reporters, and giving you the ad-free experience and lightning fast website you deserve.

Patriots will also be eligible for Patriots Only content, newsletters, chats and live events with our reporters and editors. It's simple: welcome us into your lives, and we'll welcome you into ours.

We can save America together.

Become a Daily Caller Patriot today.

Signature

Neil Patel