Retailers have used “bait and switch” deceptive advertising tactics for decades. The old trick was to advertise sales on their merchandise supposedly with sharp markdowns. But once you came into the store looking to buy merchandise at the advertised sale price, you would be told that the advertised sale items were all sold out. The store’s sales force would be trained, however, to try to switch you to buy some other merchandise which was supposedly “on sale” for a good price.
That was controlled by “consumer” regulation making such “bait and switch” advertising illegal. That regulation required the store to sell you the advertised merchandise at the advertised sale price once the store was able to restock the advertised merchandise.
The modern version of this deceptive advertising is called “false reference pricing.” Merchandise is advertised as “on sale” at substantially reduced prices, such as 50% off. But the trick is that no one ever bought the merchandise at the “original” price to begin with.
But the mere prospect of a “50% off” sale gets you in the store looking for the merchandise. The sales force then directs you to the goods that the store can make a profit on even at the “discounted” price. That avoids “bait and switch” regulation requiring the store to sell merchandise at a loss at the advertised sale price involving some supposed huge percentage sale discount.
The Los Angeles City Attorney recently filed suit against 4 of the nation’s largest retail companies – JC Penney, Sears, Kohl’s, and Macy’s – for still engaging in such deceptive advertising practices. But there is a much bigger story regarding similarly deceptive, false, “bait and switch” misrepresentations by national retail chains to win favorable regulations in the 2010 Dodd-Frank legislation enacted by national Democrats who were then in control of Congress.
Retail lobbyists convinced national Democrats, through Dodd-Frank’s Durbin Amendment, to impose price controls on what national credit card or debit card companies could charge retailers in fees for accepting their cards for payment from their customers. Those price controls involve big savings for the retailers, totaling by now $36 billion.
The problem is that the retail lobbyists told Congress that stores would pass along those savings to their customers or to their workers. Lyle Beckwith, senior vice president for government affairs at the Association for Convenience and Fuel Retailing, told Congress, “If fees are cut, small businesses will be able to grow their business, pay their employees more and pass savings along to their customers.”
A study by the Federal Reserve Bank of Richmond found that just 1% to 2% of retailers actually lowered their prices after the Dodd-Frank’s Durbin Amendment passed. That did not add up to savings of $36 billion for consumers, or wage increases of $36 billion for workers.
Much more has been heard about repealing Obamacare, for which the failed promises are so much easier to understand. But Dodd-Frank involves similar failures. President Obama told us that Dodd-Frank would put an end to any further bank bailouts with taxpayer funds. But to the contrary, the similarly massive legislation actually institutionalizes further bank bailouts when believed necessary. The legislation provides mechanisms to finance further bailouts from taxpayers.
Price controls have never worked throughout human history. They increase demand for the controlled product, and reduce supply, invariably creating a shortage. One of the first things President Reagan did was eliminate the price controls on oil and gas when he entered office. Contrary to the criticisms of liberals, production soared as a result, and prices fell rather than rising.
Repealing the Durbin Amendment would stop the unjust distribution of wealth from American consumers to big-box retailers. Just as repealing the regulatory and tax and spending burdens of Obamacare would be pro-growth, repealing Dodd-Frank would produce higher economic growth, with millions more jobs and higher wages. It would liberate lenders throughout the economy to provide more loans and capital for business, financing millions of new jobs with higher wages, and more lending for consumers. That would be part of creating long overdue economic recovery and booming growth.
Peter Ferrara served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush. He is Principal and General Counsel for the Raddington Group, an international economic consulting firm, and a senior fellow for the Heartland Institute and the National Tax Limitation Foundation and Committee.