The Durbin Fee

Posted by Marc Hodak on August 22, 2011 under Unintended consequences | Read the First Comment

via Thom Lambert at TOTM:

Whoever would have guessed that Mr. Durbin’s valiant effort to prevent future financial crises by imposing brute price controls would have had these sorts of unintended consequences?

Thom is referring to the government’s regulation of debit card swipe fees.

Government price controls typically have three predictable (sometimes, though not always, unintended) effects.  Let’s see if they apply here:

Politicization of price setting:

Ben Bernanke, who apparently doesn’t have enough on his plate, was tasked with determining banks’ processing and fraud-related costs and setting a swipe fee that’s just high enough to cover those costs.  Mr. Bernanke first decided that the aggregate cost totaled twelve cents per swipe.  After receiving over 11,000 helpful comments, Mr. Bernanke changed his mind.  Banks’ processing and fraud costs, he decided, are really 21 cents per swipe, plus 0.05 percent of the transaction amount.

Check.

Complex market workarounds in response to “one-size-fits-all” price:

The WSJ is reporting that a number of banks, facing the prospect of reduced revenues from swipe fees, are going to start charging customers an upfront, non-swipe fee for the right to make debit card purchases.  Wells Fargo, J.P. Morgan Chase, Suntrust, Regions, and Bank of America have announced plans to try or explore these sorts of fees — “Durbin Fees,” you might call them.

Check.

Economic harm to the intended beneficiaries of the law:

Fortunately for me, I can just switch to using my credit card, which will not be subject to the price controls imposed by Messrs Durbin and Bernanke.  Because I earn a decent salary and have a good credit history, this sort of a switch won’t really hurt me… Of course, lots of folks — especially those who are out of work or have defaulted on some financial obligations because of the financial crisis and ensuing recession — don’t have access to cheap credit.  They can’t avoid Durbin Fees the way I (and Messrs Durbin and Bernanke) can.

Check.

Thom then proposes that subsidies may be on their way to those “protected” (i.e., disenfranchised) by this law, harkening Reagan’s famous quip about government action.