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Blame Government for Debit Card Changes


Posted by Kelly William Cobb on Thursday, October 13th, 2011, 11:37 AM PERMALINK


We're just beginning to see the impact of the Dodd-Frank financial reform act with over 500 new regulations entering the pipeline. Yet, the fresh-out-of-the-gate price control on debit cards has already sparked an uproar.

Dodd-Frank, following a push by Sen. Dick Durbin (D-IL), instructed the Federal Reserve to set a price control that capped the interchange fee paid by retailers to banks in order to accept debit cards. The fee traditionally covered the cost of checking accounts, consumer card rewards, and ensured secure transactions and fraud prevention. As predicted, banks have had to cover the cost of Durbin's price control, now set at roughly 21 cents a transaction, by eliminating free checking, charging for use of a debit card, or reducing card benefits dramatically. For these reasons, over 30 free-market groups called for the regulations to be rolled back earlier this year.

This has sparked some consumer backlash, but instead of laying blame on financial institutions, it should be placed squarely at the feet of Sen. Durbin and the Federal Reserve. Changes to consumers' bank accounts or debit cards would not have occurred had this law never been implemented.

Thankfully for consumers, Reps. Jason Chaffetz (R-UT) and Bill Owens (D-NY) have introduced the Consumer Debit Card Protection Act that will repeal the Durbin price control. This follows an effort in the Senate last June that would have delayed and studied the impact of the regulation before it went into effect. That measure was supported 54-45, but did not reach the 60 votes needed to invoke cloture.

Americans for Tax Reform strongly supports the Chaffetz-Owens Consumer Debit Card Protection Act. As predicted, the interchange price controls by Sen. Durbin and the Fed have dramatically altered the market for debit cards and negatively impacted consumers in the process. The rule should be rolled back in its entirety.

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