Road to bad outcomes was paved by Dodd-Frank

Swayed by lobbyists from the retail industry, Sen. Durbin (D-Ill.) and many of his well-meaning colleagues reasoned that capping swipe fees would lead to billions in savings for consumers. But these savings never arrived at their intended destination. Reports repeatedly show that retailers simply pocketed the savings themselves. One study from the Electronic Payment Coalition found that the fee cap produces $8 billion for retailers every year, and no savings for consumers.
 
Not only have consumers seen zero savings over the last three years, they’re starting to see more fees and higher costs from their banks, too. Reeling from lost revenue after the mandated drop in swipe fees, banks seek creative ways to make up ground. That has meant eliminating free checking accounts and debit card reward programs.
 

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The problem is about to get even worse. On August 1, Judge Richard Leon of the U.S. District Court for the District of Columbia ruled that the Federal Reserve misapplied Congress’s intent when it implemented required swipe fee reforms in 2011. As a likely result, the federal regulators will reduce the cap even further than its current level of 21 cents per transaction. This means that retailers will see another big windfall, and banks will scramble to find ways to make up lost revenue. Once again, the politically connected will win, and consumers will lose.
 
Capitol Hill hasn't paid much attention to the financial regulation fall-out during the last three years, and that should change.  Rep. Scott Garrett (R-N.J.), chairman of the House Financial Services Committee’s Subcommittee on Capital Markets and Government-Sponsored Enterprises, recently called the Dodd-Frank legislation and in inference, the Durbin Amendment, a boon to lobbyists and bureaucrats and bad for taxpayers and consumers.
 
Garrett’s right, and he and his colleagues in Congress should seek ways to scale back the government’s role in regulating swipe fees. The solution to this government-created problem is not more government; it's the free market. If banks could compete with lower fees and better service, then retailers and consumers would both be better off.

Hanson is federal policy analyst with Americans for Prosperity.