Guest Commentary By Professor James P. Moran, B.A., M.A., Ph.D.
There is an old saying in politics: ” If you´re not at the table, then you´re on the menu.” Unfortunately, the American people have been on the menu—to the tune of almost $100 billion—of the large multinational big box retail merchants thanks to backroom deals, high-priced lobbyists, and congressional intervention in a dispute over debit card interchange fees. And it’s about to get even worse.
At issue is the expansion of a policy that a study from Florida Tax Watch, an independent, non-partisan, non-profit government watchdog dedicated to increasing accountability at the state and federal level, found to be a regressive wealth transfer from Florida’s consumers to the top retailers in America. That policy is colloquially known as the Durbin Amendment, named after its 2011 sponsor, Sen. Dick Durbin.
The Durbin Amendment instituted a price cap on interchange fees—the fees retailers pay when a consumer uses a debit card for a transaction. This policy effectively transferred the responsibility of paying this fee from the Walmarts and Targets of the world to Florida’s consumers. Because Congress shielded big banks from paying the full fee, debit card processors just passed the remaining costs onto Main Street.
The Durbin Amendment erected barriers for lower-income Americans and more vulnerable communities as the once-standard perks of debit card usage, such as rewards and free checking, were eliminated, leaving consumers to grapple with higher minimum balances, higher overdraft fees and more costly ATM charges. This hurt Americans in every state, but none more than the residents of Florida, which has more income inequality than all but one state and a disproportionate percentage of its population on fixed-income residents.
In 2011, former Fed Chairman Ben Bernanke said that the Durbin Amendment was “challenging,” and former Federal Reserve Board Member Elizabeth Duke stated that “the one seemingly unavoidable impact of this rule (is) higher fees on checking accounts.” Fast forward thirteen years to the present, however, and the Federal Reserve is promoting a new regulation (which it is calling Regulation II) that would create a more stringent price cap. This reminds me of the quotation often credited to Albert Einstein: “Insanity is doing the same thing over and over again and expecting different results.”
The former consumer finance director of Pew Charitable Trusts recently issued a study warning that the new Fed proposal could cost consumers up to $2 billion. The study suggests that it will become more challenging for consumers to evade fees as bank accounts advertised as “free” without maintenance charges grow rarer, and the average minimum deposit needed to be exempt from fees increases.
There is no free lunch. When the government imposes a cost, businesses will find a way to compensate for the lost revenue. In this case, the evidence clearly shows the most vulnerable communities will bear the burden of the newly imposed fees.
For the sake of consumers, the prudent course is for the Federal Reserve to return to reconsider this policy. In an era of inflation, adopting a policy we know will drive up costs on working-class Americans makes no sense.
Dr. James P. Moran is a Florida-based economist. He is a former Department Chair at Russell Sage College.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Tampa Free Press.
Help support the Tampa Free Press by making any small donation by clicking here.
Android Users, Click To Download The Tampa Free Press App And Never Miss A Story. Follow Us On Facebook and Twitter. Sign up for our free newsletter.