For over 20 years, Americans have been questioned by a credit card catchphrase asking, “What’s in your wallet?” The more relevant question today is who is in your wallet, given the activist lawmakers in Washington eager to regulate nearly every aspect of our financial lives. And once again, we open our wallets to find Sen. Dick Durbin (D-Ill.) settling in and making himself comfortable.
Aside from earning a spot on the Mt. Rushmore of Senate tax raisers over his career, Durbin has gone above and beyond, raiding Americans’ wallets – specifically their debit cards – with vigor in 2010 through an amendment to the Dodd-Frank law that bears his name. The Durbin Amendment was purportedly aimed at lowering debit card fee transactions for consumers. What we’ve learned in that time is startling: Capping debit card fees resulted in higher costs for consumers, but larger profits for retailers.
Banks responded to the loss in exchange fee revenue by raising other rates and fees, eliminating free checking and wiping away nearly all of the benefits and rewards they offered with their branded debit cards. Durbin’s “pro-consumer” legislation wound up costing consumers billions, the loss of perks and benefits and priced millions out of owning a bank account.
Now, along with his friends in the big-box retailer industry, Durbin is back for round II in his ideological rumble against America’s banks, pushing legislation titled “the Credit Card Competition Act of 2022.” Under the guise of creating “more competition” in credit card exchanges used by merchants, Durbin is primed to rob consumers of credit card benefits just as he did with debit cards.
The credit card industry is already highly competitive, with banks attracting customers through innovative products and incentives such as cash back, travel miles, gift-card rewards and numerous other benefits ranging from extended warranties, concert tickets, restaurant and hotel discounts and roadside assistance. These are not benefits consumers receive through paying by cash, or, thanks to Durbin, a debit card. They are the result of market competition in the credit card industry that puts actual financial benefits into consumers’ pockets.
According to the International Center for Law and Economics: “the 2010 Durbin Amendment …generated benefits for large-box retailers, [but] imposed substantial net costs on the majority of consumers, especially those from lower-income households.” Economists from Georgetown and the University of Pennsylvania’s business schools found that “banks fully offset losses [caused by the Durbin Amendment] by charging higher fees.”
Durbin’s new legislation promises more of the same. Bankrate senior analyst Ted Rossman called Durbin’s new legislation “very bad” for consumers, as it will eviscerate the $60 billion in annual value they acquire through card benefits. The savings for consumers Durbin claims his new legislation will create are wholly illusory, as the same claims were made 12 years ago prior to his sortie on debit cards. As Rossman points out, “merchants won’t admit it, but they pocketed the savings.”
The Points Guy, a publication focused exclusively on consumer rewards, states that the Durbin Bill “would be disastrous for consumers, especially those who get immense value from rewards and protections on credit cards…” And to mix in crippling government regulation with hometown cronyism, Durbin’s bill targets Visa and Mastercard but gives a pass to Chicago-based Discover Card.
Durbin’s proposed interference in the credit card market will wallop consumers in three ways: they will lose rewards and cash-back programs; they will face higher annual fees; and they will be exposed to the potential of fraud through less-secure networks. None of this is speculation, as Durbin’s meddling with debit cards demonstrated exactly how banks respond when handcuffed in a competitive market.
Oddly, joining Durbin in this anti-consumer legislation is Sen. Roger Marshall (R-Kan). No other Senate Republican has joined the legislation, which Senator Durbin hopes to attach to the must-pass National Defense Authorization Act, and skip having his bill scrutinized by the Senate Finance Committee.
It is basic economics that if you raise prices on businesses, they will either raise prices on consumers, cut services or both. The Durbin-Marshall bill may be aimed at the two major credit card companies. But given the disastrous impact it will have on card benefits, financial security and convenience, it will hit consumers squarely in their wallets.
Gerard Scimeca is an attorney and serves as chairman and co-founder of CASE, Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.