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Special Report
Dick Durbin Is Stealing Your Free Checking!
Michigan Democrats and Republicans alike hand the Senate Majority Whip a stinging defeat.
In the battle against Obamacare, the first chinks in the law’s armor were resolutions against the law by state legislatures. These resolutions led to court cases that have been victorious in two instances, and a new majority in the U.S. House Representatives that voted to repeal the law.
On Tuesday, the first salvo was fired against another command-and control scheme of the last Congress — from the newly purple state of Michigan. There, the state Senate, following the state House last Friday, passed the first resolution against a provision of the 2400-page Dodd-Frank financial “reform” of 2010.
In an amazingly unanimous vote, the Republican and Democrat state senators condemned a specific amendment from U.S. Senate Majority Whip Dick Durbin (D-Ill.) and the corresponding proposed rule from the Federal Reserve implementing a debit price control scheme that benefits Walgreens, Home Depot, and some of the nation’s biggest retailers and shifts costs to consumers in terms of loss of free checking, higher bank fees, and reduced card rewards.
Referring to “Section 1075,” also known as the Durbin Amendment, the resolution states: “We urge Congress to stop or delay the implementation of Section 1075 so that statutory changes can be made… to ensure Section 1075 does not result in increased fees on consumers.” The resolution also expressed concern that the Durbin Amendment would harm credit unions and community banks, which were given technical exemptions that turned out to hardly shield them from the law’s costs.
This may not yet be Waterloo for the Durbin Amendment, let alone Dodd-Frank, but it will certainly add to the increasing scrutiny — scrutiny that will be under way today at a hearing of the House Financial Services Committee. It’s also difficult to imagine a more stinging defeat for a Senate Majority Whip than to have all the members of his own party in the legislative chamber of a state in close proximity to the one he represents vote to condemn his amendment and one of his pet causes.
But then in pushing these price controls on behalf of retailers, Durbin has been quite arrogant, even for a politician. In one of those rare moments of politicians acknowledging the true masters whom they serve, Sen. Durbin admitted on the Senate floor that the CEO of Walgreens, headquartered outside of Chicago in his home state, called him to complain that the transaction fees Walgreens pays to process debit and credit cards were “the fourth largest item of cost for their business.” Durbin actually argued that relieving costs of doing business for a company that makes $2 billion in annual profits was a reason to support price controls on what it pays for financial services.
But when the Fed issued its rule in December, it even exceeded Durbin’s order, filling the Christmas wish lists of Walgreens and other merchants while giving their customers several lumps of coal. If the Durbin Amendment isn’t repealed or delayed soon, American consumers will be losing their free checking, seeing the return of annual fees, and getting significantly reduced reward points for the purchases they make with plastic.
Indeed, consumers have already been paying for the anticipated costs of the Durbin Amendment. “Free checking as we know it is ending,” reported the lead paragraph of an Associated Press story in October, and the article listed as one of the main reasons “the new regulations limit fees the bank can collect when retailers accept debit cards.”
Under the proposed rule the Fed put forward for regulation of interchange fees — the fees card issuers charge retailers to process debit card transactions — merchants will never pay more than 12 cents for any customer’s transactions, whether it’s for $1.00 or $10,000. This goes far beyond even the language of the pro-retailer Durbin Amendment, which required the Fed to “establish standards” to assess whether interchange fees were “reasonable and proportional to the cost,” but did not specify what these fees should be.
According to the Associated Press, the Fed said that average interchange fees in 2009 ranged from 44 to 56 cents. This means that the 12-cent cap will cause a 70 to 90 percent drop in revenues for the banks and credit unions that issue debit cards. And By the Fed’s own admission, this will not come close to covering the cost of processing debit card transactions, let alone allow the banks and credit unions to make a profit from what they charge retailers for the valuable services of electronic payments.
Retailers claim such severe price controls are necessary because the Visa and MasterCard networks dominate in payment cards (which are actually issued by thousands of banks within the networks). But the structure has mostly survived antitrust challenges, and as with retail itself, which is dominated by big players like Walgreens and Home Depot, there are options to choose from. There are alternative payment systems such as PayPal, and the Fed rule itself notes that there are a “number of” national debit card payment networks.
And stores always have the option of only taking cash or providing discounts for cash. If stores take a debit or credit card, they are making a business decision that they will earn more money with it than without it as well as get protection from the costs of fraud from bad checks and from theft of cash in the register.
Even in the case of “natural monopolies” like utilities, it is unwise and likely unconstitutional public policy to outlaw profit, let alone to force pricing below cost. According to Professor Richard Epstein, a constitutional law and property rights expert on the faculty of the New York University Law School, this rule is the federal first price control scheme in U.S. history in which businesses, by design, are required to sell their products or services below cost. He says in an interview that even under the gasoline price caps of the '70s, “no one was asked to sell below cost.”
And this is not only horrible policy; it also likely crosses a constitutional line. As argued by a lawsuit challenging the Durbin Amendment from Minneapolis-based TCF National Bank, on which Epstein is serving as an attorney, the fee controls likely violate both the Due Process and Takings Clauses of the 5th Amendment because they deprive banks and credit unions that issue cards of their property rights to a return on capital invested. The Supreme Court in its 1989 case , affirmed 8-1 that a government-set “rate is too low if it is so unjust as to destroy the value of the property for all the purposes for which it was acquired.”
But according to the Fed, the 12-cent cap creates “an incentive to control costs.” And besides, the Fed points out, “the interchange fee standard would not limit the ability of an issuer to earn revenue from other sources, such as by charging fees to its cardholders.” Gee, what a pro-consumer Fed!
About the Author
John Berlau is Senior Fellow for Finance and Access to Capital at the Competitive Enterprise Institute and blogs at OpenMarket.org.
Letter to the Editor View all comments (55) | Leave a comment
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Carol | 2.17.11 @ 6:33AM
Thanks for the article.
I knew the consumer was going to be hit by Obama's takeover of the financial industry but didn't know it's slimeballs like the millionaire Turbin Durban who are doing favors for their favorite retailers.
Thank God for you people out there digging up the details we the people won't know about until it hits us in the wallet.
old white guy| 2.17.11 @ 3:18PM
we should off these morons in the most environmentally friendly way possible.
mames| 2.17.11 @ 5:26PM
Yes we should and why reinvent the wheel? They should be in prison anyway; why not give them the injections and use cremation, 'sprinkle the ashes around the flowers. They are probably far more effective than any manure.
Big Bambu| 2.18.11 @ 7:51AM
Senator DirtBin needs to be voted out of office along with all the other DemocRats. The DemocRat party must be destroyed if America is to survive as a constitutional republic.
Kelly| 2.21.11 @ 2:35PM
And it is the GOP in bed with big business...its like they live on a whole different planet...the left does the dirty stuff and then blames the GOP for doing it...the only hope we have is that the american people have got a clue and are feeling pretty stupid for having the wool pulled over their eyes and hope they dont make the same mistake again.
Appleby| 2.17.11 @ 7:06AM
Free checking is a dim memory in our land of Kanukistan (my free checking and debit access costs me $12 a month). Everyone carries debit cards, mainly because it makes us less susceptible to purse snatchers and holdup artists, and in my case it allows me to track my purchases and bank balance without having to write everything down.
To the point of this article, though, its high time that people who do not pay their own bills or handle money that belongs to them stop making stupid rules for the rest of us. Durbin reminds me of my wealthy cousin who asked, at age 12, *If poor people dont have money, why dont they charge it?* That after all was what her Mama did.
old white guy| 2.17.11 @ 3:19PM
you are not over sixty or a bns customer .
Curly Smith| 2.17.11 @ 7:07AM
Isn't Durbin's rationale that the financial transaction costs paid by a business are passed on to the consumer? That the consumer actually pays the business' cost of doing business? So, by voting for the Durbin Amendment didn't Congress admit that businesses don't pay income taxes, that those taxes are passed on to the consumer? Didn't the Democratic Party controlled Congress provide all the rationale necessary to eliminate corporate income taxes with the Durbin Amendment? I guess they should have found out what was in it before they passed it.
YeloStalyn| 2.17.11 @ 3:09PM
Very observant! However, there is something else in the article that I think warrents our attention. The article mentions that when price controls are set, the consumer never sees a drop in the price of goods. What does this mean? It means that when cost of business goes up, the consumer foots the bill. And it means when the cost of business goes down, the consumer doesn't get a break. It is a joke to think that corperations will look out for their "little" employees and consumers when there is already an established "norm" that, if the variables that create it are changed in favor of the profit makers in the end, will change to benifit the consumers and employees equally as well rather than increasing the profits and bonuses of the few at the top.
Do not take that to mean I beleive in government intervention or controls. Just thought it was worth pointing out.
old white guy| 2.17.11 @ 3:21PM
it is unfortunate because all corporations are made up of , wait for it, people.
YeloStalyn| 2.17.11 @ 4:30PM
That is why I find myself consistantly comming to a beliefe that the "free market" is inferior to what I would call a "moral market" in which a moral people are let to be free. There will still be failures, to be sure. But when the masses are immoral and when most will cut corners, lie, cheat, and steal then you get exploitation. Unfortunately, the left is the standard bearer for us being an immoral people... and that bodes very ill for the very people they profess to protect... the middle and lower classes.
If we would refocus on if things are good or bad, right or wrong, moral or immoral... rather than if they just work or not... then questions of justice, fairness, and equity would naturally be resolved with the best solution.
That is where I think many Republicans fail. They look at pragmatism rather than philosophy.
beebop| 2.17.11 @ 9:22PM
Gee. Imagine that someone with your simplistic view of reality can't spell either. Thanks for sharing and giving me the laugh that the article declined to provide ...
gonefishin27 | 2.18.11 @ 7:26AM
OH lookie we have the spelling police. Didn't have an intelligent come back to the statement just attack the messenger.
skip| 2.17.11 @ 11:38PM
Are you saying something like:
If everyone was a faithful Christian, and conducted all business consistently with Christian morals, and performed all jobs as good practising Christians, then there would be no lying, cheating, or stealing, profits would be truly maximized, cost truly minimized, wealth truly spread?
Sign me up.
Shamus| 2.17.11 @ 7:13AM
Durbin is a dimwit. He's the guy who compared US troops to Nazis.
irish19| 2.17.11 @ 11:51AM
Yes he did. If I were his opponent in the next election, I'd run that over and over while showing pictures of U.S. troops doing humanitarian work.
Dr. Thomas| 2.17.11 @ 7:39AM
What a Dick!
Melvin| 2.17.11 @ 8:09AM
Rightly so, but an extremely dangerous one nevertheless.
The Bishop| 2.17.11 @ 9:39AM
This one needs circumcised. Off with his head!
The Bishop| 2.17.11 @ 9:41AM
Okay, before I get a visit from the federates worrying about Dick's safety, that was a joke and play on words. Sort of.
Dean| 2.17.11 @ 11:34AM
Durbin was probably circumcised, but the doctor threw away the wrong part.
irish19| 2.17.11 @ 11:52AM
ROTFLMAO!! That was priceless! And accurate!
GavInTucson| 2.17.11 @ 10:54PM
Priceless. It reminds me of a line out of Die Hard 2.
"Dick. That is your name, right? Dick?"
David W| 2.17.11 @ 8:38AM
Perfect example of why we need to minimize government intervention in anything. There is always an overreaction from the government (like trying to drive a thumbtack in with a 20 pound sledgehammer). There are always unintended consequences for any rule or law (especially in a bill that runs 2000+ pages). Finally, we see what happens when government and a business or group work together to produce a law - the consumers always get screwed (in this case, businesses pass on their costs to the consumer AND the banks get to charge more). In many cases the taxpayers (e.g., in ethanol) get screwed as well.
old white guy| 2.17.11 @ 3:23PM
you do know that there is no cure for stupid ?
squalis| 2.17.11 @ 8:47AM
Once free checking ends and card fees go up, can't you see Huff Po, MSNBC, and all the rest screaming about those greedy banks!
Chalkdust| 2.17.11 @ 8:55AM
Dicky Durbin is an asshat, but never-the less he reminds me of a old-time canary in the coal mines in reverse. Whenever he chirps, he's a reminder of 99 other canaries asshats looking out after our best interest in a methane filled world they help create by crapping on us. Whew! It's gibberish I know, but I feel better and my dog feels its safe to come out from behind the sofa.
Donna| 2.17.11 @ 8:55AM
I remember a time when retailers did give a 3% discount for cash. There are a couple of shops at that are doing it again. This is how retailers should fight the high fees. Legislation is not the answer. Cash is king!! When I had a business I took credit cards for about 6 months. The fees are outrages and understand HD and Walgreens complaints. Start offering cash discounts and problem solved.
crooked wren| 2.17.11 @ 9:05AM
Yes. Had some participation in a shop some years ago. Taking Am Ex was a problem while we were renting a machine from a bank,but when we bought our own, guess what? Am Ex wasn't a bit more expensive.
I get the cost to the big retailers. I do. But when Gub'ment gets involved, things only get WORSE.
Besides, I thought the Dems LOATHED GREEDY BIG BUSINESS. Oh, but then they are the ones who get a two-year pass on ObamaCare, too. Oh, and they have deep ties to Goldman Sachs and GE.
The hypocrisy is sickening.
Calvin | 2.17.11 @ 3:44PM
Lots of reasons to give discounts for cash, the main one being you then enter the black, or shall we say free, market. Where the govt cannot track and tax the flow of money. I am starting to see this already as a result of the recession. Higher taxes and regulation will only aceelerate this.
PolishKnight| 2.17.11 @ 6:21PM
Donna, here's the deal with that. Some of the credit card companies have requirements in their agreements with the merchant that they cannot give a cash discount. It's all or nothing. I can see their point in that a "cash discount" effectively advertises for their cardholders to NOT want to use their card!
At the same time, merchants can fight back as well with similar non-disclosure deals of their own. Large retailers such as wal-mart can negotiate down fees while smaller mom and pop stores get stuck with massively large ones in order to make their plastic customers happy.
The worst thing about the current situation is the mess being made by the credit card companies themselves in not closing ID theft issues. They issued RFIDs on the cards and the RFIDs do not enhance security but rather advertise people's card numbers out of their wallets to thieves with roaming scanners.
The CC companies should agree on a standard for a compact biometric based device to be issued to everyone (in CC form or maybe a keychain with a fingerprint reader) with all of the info on it and then secured with a detector that flashes away the memory if it's tampered with.
Intelligent Design| 2.17.11 @ 8:55AM
Aside from repealing major legislation passed by the Demo-Socialists over the past 50 years, the aim of conservatives should be to cut the size of the federal government in half, literally. Dismantle Socialist Security, repeal Obamacare, eliminate the Departments of Energy and Education, cut the budgets of Interior and State in half, eliminate all funding of the UN, bring all the troops home from Iraq and Afghanistan now, repeal the Corn Laws (ethanol mandate), fire 500,000 federal employees across the board, "and like that", to quote Theo Kojak.
dnha14| 2.17.11 @ 9:19AM
I mean it's called the Dodd-Frank bill. Now you add a pinch of Durbin. What could go wrong? Basically, everything. I could have told Congress that BEFORE they passed it. Dodd-Frank??? It has to be corrupt.
Ned| 2.17.11 @ 10:21AM
your focus is a little narrow - if it's a bill written by the US Congress, it is by definition (mine anyway) corrupt. Frank, Durbin and Dodd are among the worst.
Mark Twain said it best 100 years ago - right about the time the Constitution was written - "It could probably be shown by facts and figures that there is no distinctly American criminal class except Congress."
Ryan| 2.17.11 @ 9:24AM
What the article also mentions is that this would be a boon to larger banks and big corporations, and squeeze out smaller banks and credit unions (which often have the lowest fees and best rates locally).
It also hurts consumers, like me, who have no-fee cash-back cards (like Chase Freedom or AmEx Blue), pay them off every month, and generally save about 1-2%+ MORE on everything I buy.
Timothy L. Pennell| 2.17.11 @ 10:11AM
Of course he is. He's already stolen our Social Security. He thinks that he's stolen our Private health care. He seeks to steal our Freedom Of Speech, in the name of CIVILITY. And he wants to steal the RIGHT to a SECRET BALLOT, away from the men and women in their Vote to Unionize or not.
HEIL HITLER!
HEIL OBAMA!
HEIL the FATHERLAND.
The Dick Durbins of the world, like the poor, "will always be among us".
"When GOD is forgotten, is when DICTATORS forge their CHAINS.
SIEG HEIL!
Oldefarte| 2.17.11 @ 11:50AM
This price-fixing is outlandish, and this financial reform legislation from Democrats should be repealed [similar to their WELFARECARE]. Hope the MORONS who voted for this CHANGE on 11/2/08 don't become too upset when their credit card/bank checking account fees start increasing over this !!!!!!!!!
NeilBJ| 2.17.11 @ 12:58PM
Let us not forget that if the banks were not able to lend money that is not rightfully theirs to begin with, it would be perfectly legitimate and necessary to charge checking account customers for the service.
Of course, I am talking about fractional reserve banking, which is akin to the owner of a storage facility lending out your belongings since you are not using them at the time.
We would not stand for this, or would we?
Bill Hussein O'Stalin| 2.17.11 @ 4:11PM
The citizens of Illinois must be complete fruitcakes to send this idiot back to the U.S. Senate.
Occam's Tool| 2.17.11 @ 8:16PM
They are. that's why I haven't lived in Illinois since age 17.
bob alou| 2.17.11 @ 4:52PM
Thank you for giving me the opportunity to join in expressing the opinion of all those paying attention that Dick Durbin is a complete idiot.
DC5Jenn | 2.17.11 @ 4:53PM
With Republicans now holding the majority in the House Chris McWilton, MasterCard's President of U.S. Markets, is hoping the amendment might be reconsidered:
http://www.pymnts.com/masterca.....in-debate/
Padoux| 2.17.11 @ 5:02PM
I would also point out to the poor "oppressed" retailers that using credit and debit cards is more efficient timewise in the checkout line. When regular checks are used the clerk must manually get all the info on the writer causing delays. I know I've spent too much time in lines waiting for written checks to be verified.
e track from saq| 2.17.11 @ 6:50PM
My take away from this,in the future I will choose to shop at CVS.So those fat cats at Walgreen are partly responsible for the reprehensible Mr. Durbin.Aren't they the same bunch that runs JC Penny.How far the captains of industry have fallen.If only Ms Rand where around to document the decline in her special dramatic narrative style.
Tom in Michigan| 2.17.11 @ 8:40PM
Even the Spectator has fallen for the leftist lie that "two of four Obamacare judgements found it constitutional." This is not the case at all as all four cases declared the individual mandate unconstitutional. The Vinson judgement however, found the mandate not only unconstitutional but also inseverable and therefore, the entire law was judged unconstitutional. This may seem like a small matter but, the fact is; the individual mandate has been judged unconstitutional in all cases. By saying "it's two-to-two" conservative writers inadvertently give credence to the law that it does not deserve.
George S| 2.17.11 @ 10:44PM
Not true. District Court Judges George Steeh and Norman Moon both (ridiculously) ruled, in dismissing law suits, that Congress does have the commerce clause power to mandate individuals to purchase. Two judges ruled the mandate unconstitutional. That's why this is headed for the Supreme Court. And four Associate Justices agree with Steeh and Moon. Wholeheartedly.
Brice Robinson| 2.17.11 @ 9:09PM
A transaction is a transaction, whether it's $1 or $10,000. There are these things called computers, see, and they do this thing called electronic transfers, see? Why should a transaction fee depend on the amount of the transaction when it's all the same to the computers?
GavInTucson| 2.17.11 @ 11:44PM
I suppose it's who you do your credit card processing business with, and/or perhaps what type of business (online vs. brick-and-mortar) you're running. I can't be sure.
I ran a small online business for about two years (on the side of my normal job) before the recession dried it up. During that time, I paid a flat $49.99 fee per month (tax deductible) for credit/debit card processing, with no transaction ceiling, so I guess I can't speak intelligently on what an actual brick-and-mortar business might be paying.
It's for this reason I was scratching my head while reading this article. Perhaps I happened upon some rare, great deal with credit card processing.
Jim | 2.18.11 @ 8:44PM
The reason free checking isn’t profitable for the big banks is that they allocate these massive branch costs to their checking accounts using the overhead allocation model. In reality, these mega-banks shouldn’t be allocating much, if any, branch costs to their checking accounts. Why? Since the first ATM was deployed in 1969 at Chemical Bank, the big banks have been employing a combination of new technology and punitive pricing (charging customers to use the branch to make a deposit) to keep checking customers out of the branches. The Internet has made visiting the branch obsolete for most checking customers. So, if checking customers are no longer using branches, why should their accounts absorb the overhead costs for them? These fixed costs should be allocated only to the accounts still requiring branches – like CD’s, safe deposit boxes, loans, and investment services.
-taken from http://freecheckinginformation.....-checking/
Nathan| 2.21.11 @ 12:08PM
So i observe this behavior all the time amongst corporate executives and it seems somewhat irrational to me.
So i am curious about the ECONOMICS of this, not the politics.
the Walgreen CEO lobbies to get these fees reduced because they are a large cost of his doing business.
however, these fees are also paid by his COMPETITORS.
wouldnt any legislative reduction in these fees be competed away by the marketplace?
so does walgreens ACTUALLY benefit from reduced debit card fees?
Reebok | 8.11.11 @ 3:23AM
is good
العاب بنات | 4.11.12 @ 5:03PM
The CC companies should agree on a standard for a compact biometric based device to be issued to everyone (in CC form or maybe a keychain with a fingerprint reader) with all of the info on it and then secured with a detector that flashes away the memory if it's tampered with.