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EDITOR OF REDSTATE

Will the Durbin Amendment Stay? If So, Consumers Are Screwed.

By: Erick Erickson (Diary)  |  March 30th, 2011 at 09:58 AM  | 

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#alttext#I’ve written about this before. The Senate may very well today or tomorrow consider fixing the problem. I hope.

After I wrote about Durbin’s amendment to the financial reform package, the Wall Street Journal took him on as well. The Wall Street Journal noted, “Congress’s 2009 effort to regulate credit cards shows what will happen. Do you like free checking? Enjoy it while you can, because unless you’re a high roller you will soon be paying for check-writing privileges. The price controls have also caused banks to deny credit to marginal borrowers—i.e., those with low incomes. Many have been forced out of the formal banking system and into the arms of payday lenders (if they’re lucky) and loan sharks (if they’re not). Mr. Durbin should have called his amendment the Payday Lender Empowerment Act.”

Dick Durbin promptly lost his business on the floor of the Senate in response to people shedding light on what he had done.

In a nutshell, the Durbin Amendment will allow the Federal Reserve to price fix charges from banks. As a result, banks are responding with eradicating debit cards, restricting purchases, ending free checking, and driving up fees.

It was a foreseeable action by banks and one Congress can’t stop unless they get rid of the Durbin Amendment. The Senate will consider doing just that today. If the Senate fails to repeal it, say goodbye to free checking and unlimited debit card purchases.

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COMMENTS

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  • acat

    The Eddie Haskel of Illinois politics, Dick “the turban” Durbin just cannot seem to find the right side of an issue .. and yet, he’s remained in D.C. representing Illinois because the state GOP cannot find their {hindquarters} with directions and both hands.

    Mew

  • cja99

    Totally agree. Anything that Turban Durbin proposes you just know is going to be a disaster for the middle class. Here come the Democrats to mess us up again, and again, and again, and again. Whenever Democrats say “we’re for the middle class” REMEMBER” it’s all a BIG FAT LIE! They waste our money totally and then they want more to waste.

  • Death_of_the_Donkey

    Sure, the big money center banks are screaming to high heaven about this, but since we do have a competitive banking system, I find it unlikely that they will be able to impose all of these new suspected fees, when it is likely that the smaller banks (who aren’t affected by the Durbin amendment as much) probably won’t. It is very easy to switch banks and I think that is why you see all the lobbying against this amendment, as the big banks know they will lose a revenue stream (or lose customers if they try to impose other fees).**

    **Note, this should not be taken as an endorsement of the Durbin Amendment, as I do not endorse it, but only as a counter argument to the common talking point of higher fees.

  • deano64

    unconstutional and it may well still be. A lone bank quietly filed suit against the Federal Reserve back in October to prevent them from implementing this garbage on the grounds its unconstitutional. I believe the first hearing is coming 4/6/2011. However, I believe if the courts find the Durbin amendment unconstitutional the whole Dodd-Frank Act goes down in flames. Maybe that’s why the Senate is scrambling to repeal the amendment so they can save the rest of their baby. The following have now filed amicus briefs:

    1) a group consisting of the American Bankers Association, Consumer Bankers Association, Mid-Size Bank Coalition of America, Independent Community Bankers of America, National Association of Federal Credit Unions, Credit Union National Association, Financial Services Roundtable, and The Clearing House Association; 2) a group of 22 State Bankers Associations, led by the Minnesota Bankers Association, representing more than 4,400 member banks; 3) South Dakota Bankers Association; and 4) a group of ten economists and law and economics scholars including Todd Zywicki, George Mason University Professor of Law.

    More here on the suit is you’re interested:

    http://www.getdebit.com/debit-news/4355/durbin-interchange-rules-unconstitutional/

    http://www.bloomberg.com/news/2010-10-12/federal-reserve-sued-by-minnesota-bank-over-limits-on-credit-card-fees.html

    http://minnesota.publicradio.org/display/web/2010/10/12/tcf-suit-feds/

  • congressworksforus

    It is already considerably cheaper to bank at local banks and credit unions, regardless of this amendment.

    So if it’s already cheaper, why do you think extra fees would make any difference in the slightest to the sheep class?

  • deano64

    If this law is implemented and you want to use a debit card you are going to pay a fee to use it.

  • taylerdog23

    Are you saying that the extra fees won’t matter to most folks because they’re too dumb to switch to a CB or CU and thus they will just keep paying the new fees?

  • http://www.objectivistcenter.org/ Eric Olsen

    …that thanks to this colossal idiot, we will no longer earn reward points for purchases made with our Chase debit card.

    Thanks a bunch, Dick. Again.

  • lineholder

    How are businesses, whether small or large, affected by this legislation? Would businesses face fees for writing checks, such as payroll checks?

    The reason I ask is that the business I work for just mandated that employees go to either prepay debit cards or automatic deposits for our payroll checks. And there have been reports in NC of banks that are considering limiting the amount of a debit transaction. For example, a person would be limited to $50 or $100 per transaction or withdrawal for a single debit transaction. If the total purchase is over the transaction limit, the individual has to make more than one transaction. Some banks charge debit transaction fees and others don’t.

    Just wondering about the causal influences involved and how this legislation could put businesses, particularly small businesses, in the position of disbursing funds through debit or prepaid cards.

  • lineholder

    I know about 5 people, making less than 35K per year, low credit limits, who had accounts with Chase. Their accounts were frozen last year.

  • taylerdog23

    Let’s be honest here: no one, including Dick Durbin, is requiring banks to charge these extra fees or for Eric Olson to lose rewards points. The big banks are doing it to make up for money they are losing because of these regulations. Sure, this is coming at a time when these banks are making record profits, but too bad if you lose rewards points or have your account frozen.

    Ultimately, these banks have an obligation to their shareholders, even if that means raping the consumer. Hey, that’s capitalism. Just do what I do: bank at a local credit union (it’s not, thankfully, affected by Dodd-Frank) and hold stock in as many big financial firms as you can. It’s a win-win.

  • http://www.objectivistcenter.org/ Eric Olsen

    …has responsibilities to it’s shareholders, and that my petty complaint about reward points is just that: petty.

    I just remain eternally amazed at how this repellant little troll continues to find ways to screw his constituents over and consistently find himself on the wrong side of issue after issue.

  • taylerdog23

    What I do know is that the move away from paper checks toward EPS (electronic payment systems) has been in process for a very long time.

    The reason is simple: paper checks are terribly expensive for a variety of reasons, including check processing fees, materials and most of all the heightened risk for fraud that comes with them.

    Paper checks are thankfully going the way of the dodo…

  • taylerdog23

    DD’s amendment doesn’t require banks to raise fees or limit debit transactions. It’s the bank’s choice. Right?

    Ok, sure, as a shareholder I could decide that I’m content with an 8% dividend versus 10% that I’m going to get when these various fees/limits are enacted, but why should I settle for 2% less when I don’t have to?

  • bassethound

    I got the same letter from Chase about my debit card a couple of weeks ago. I am ticked off big time. I use the card to make utility payments, and have been able to turn it into a pretty nice little piggy band for $15 bucks a month or so. Not a lot, but it adds up.

  • bassethound

    I got the same letter from Chase about my debit card a couple of weeks ago. I am ticked off big time. I use the card to make utility payments, and have been able to turn it into a pretty nice little piggy band for $15 bucks a month or so. Not a lot, but it adds up.

  • The_Gadfly

    either debit or credit cards are actually phenomenal. Despite the high rates on the credit cards, this is where banks make their money. It’s been some years since I’ve been involved in the finances, but when I was the standard fee for a business processing a check was in the 25 to 35 cents per check. If you go with electronic deposit, that fee gets eliminated. That’s part of why businesses push employees into direct deposit. The debit card is just a way to get the electronic deposit.

    If the banks limit transactions to $50 it will kill businesses. When I was involved in the business end of banking, it was for memberships which were $55 per person – just over the limit. There’s no way to break that into smaller transactions. Which means handling more cash. And we adopted accepting credit cards and debit cards as much to reduce cash handling as for the convenience of our members. Our fees at the time were 25 cents per completed transaction plus something like 2.5% of the total transaction amount, which worked out to about 3% of our membership fee. So the rates are actually quite high for small purchases. For a $10 purchase (a frequent minimum) the rate is 5%.

    So while I agree that the fees are too high, there are too many detrimental consequences to the law. I think the real problem is that when you are under the merchant agreements, you aren’t allowed to tell your purchasers what your actual costs are. So even though I didn’t name the specific agent, I still chose a number different from but near our actual costs. I would support a law prohibiting those non-disclosure clauses. I could also support a law prohibiting the merchant agreements from offering cash discounts. But never setting the fees for the agencies, even as a maximum rate.

  • acat

    Because he doesn’t have to pay the credit card or check fee, he kicks back what the fee would be back to me.

    It’s small enough that I don’t tend to take advantage of it for small tickets – just too convenient to call him with a card number – but for larger repairs it’s saved me quite a bit.

    One side point – I’m not likely to get mugged, but .. if this goes through, and people start carrying more ca$h, look for mugging to get more common…

    Mew

  • deano64

    don’t be so sure it won’t affect you. Otherwise why would these oranizations have filed an amicus briefs in the suit challenging this amendment?
    National Association of Federal Credit Unions and Credit Union National Association.

  • http://www.gmsplace.com/ civil truth

    Here’s a few more expressions for you while you’re on a roll

    War is peace
    Freedom is slavery
    Ignorance is strength

  • rightwingmom52

    the passing of unrestricted carry laws in more states. Even bad things occasionally have a positive side effect.

    Just trying to see the glass half-full for a change.

  • http://theminorityreportblog.com Repair_Man_Jack

    I saw entire illicit cash economy set up shop and operate every Saturday Afternoon outside my apartment building…

  • http://theminorityreportblog.com Repair_Man_Jack

    I saw entire illicit cash economy set up shop and operate every Saturday Afternoon outside my apartment building…

  • rightwingmom52
  • deano64

    http://www.thestreet.com/story/11066423/1/fed-delays-durbin-rules-report.html#

  • http://theminorityreportblog.com Repair_Man_Jack
  • taylerdog23

    Hey, on priciple I don’t like the government regulations any more than you do, but just because they are regulating things like debit fees doesn’t absolutely require that financial firms pass on these costs to consumers. It’s not a mandatory pass-through and you know the regs don’t require it.

    But hey, as a financial institution stockholder, all I care about is return on my investment. Whether those returns come from overdraft fees or debit card fees, I don’t really care. Ultimately, despite the regs, the financial industry will figure out a way around them. That’s why they are good investments.

  • acat

    for a long, long time .. until U of I expansion crushed it. The Maxwell Street market even has a cameo in “The Blues Brothers”.

    Used to be a lot of fun to take friends from suburbia down to the market…

    Mew

  • lineholder

    was to emphasize Erick’s point about how this kind of legislation can influence the lives of people in the low-to-middle income brackets. Unfortunately, for those of us in that bracket, we don’t have the luxury of holding stock in big financial firms.

    I will say this though….for those that I know who had their credit cards frozen, it’s turning out in their favor. They are learning how to live within the scope of their income rather than being dependent on expectation of future income.

  • lineholder

    It makes sense that legislation of this sort would impact small business owners as much as individual consumers. I just didn’t realize to what extent.

  • http://www.gmsplace.com/ civil truth

    Retailers get a benefit from debit/credit cards as a substitute for checks and cash in terms of processing costs. And sales are increased because customers aren’t limited by the cash in their pocket or (with credit cards) their bank balance.

    It they don’t like the fees, they can not do business with the banks or find a different bank. If enough businesses choose that, that leaves room for some enterprising bank to lower their charges, which puts pressure on others. So that’s the market balance on too high fees.

    Or if some bank comes up with better technology, etc. that enables it to lower their charges to gain business, that’s the market at work improving efficiency. That leaves room for innovation and dyanamic investment.

    That’s what profit is about, setting rewards on efficient behavior. And as for your 10% vs. 8% profit margin (though a better metric is ROA), that’s not really any individual bank’s decision; if they profit margin falls, investors will go elsewhere; if the industry profits fall, investors will move to different industry, reducing capital availability to banks.

    So what’s the best level for pricing with all these factors – that’s what a market is about, weighing these factors dynamically through a multitude of deciders and coming up with an efficient solution that can rapidly change to factor changes.

    When you fix credit/debit charges, then you freeze this whole process on the basis of political influence, not supply and demand, with resultant winners (big retailers) and losers (bank customers) which likely will be different and more harmful than what the market would come up.

    Yes the banks will come up with get-arounds – but these will be less efficient and probably cause new harms which will call for demands for more government intervention and more harm spiraling downwards. And not only to banks, but to businesses and individuals who will be harmed by the inflexibility of financing, for instance.

    No thanks, just keep the government out. They’re already too involved already.

  • http://www.gmsplace.com/ civil truth

    not a statement

  • congressworksforus
  • congressworksforus

    The real issue here is that the retailers who pay the 2-3% in service charge for swiping a card are NOT going to pass that savings on to the customer, because they’re STILL paying that charge for credit cards.

    Which means that the customer is now:

    1. Paying the same price for the purchased goods
    2. Paying more bank fees so the banks can still meet shareholder expectations (as they SHOULD DO)
    3. Losing the debit card reward points that they were earning.

    So, please, tell me where the end consumer is BENEFITING ?

  • congressworksforus
  • caboose

    been passed by the US house of representatives? If so when?

  • The_Gadfly

    It was an honest question and deserved a good response.