Positive changes coming for small business lending program
Retailers have themselves to thank for lower Christmas sales
Retailer anxiety is rising nationwide as Black Friday spending declined despite the increase in total number of shoppers. Major chains are trying to manage (read: minimize) profit expectations. Online sales are rising, offsetting losses for some chains, but the harsh reality remains: holiday shoppers will have 22 billion fewer dollars to spend, thanks to lawmakers in Washington who were once again playing Santa, handing out supposedly "free" gifts.
Obamacare was not the only disastrous comprehensive reform bill passed when President Obama had control of both houses of Congress. Another was the Dodd-Frank Financial Reform Act. One of its provisions, passed with no committee hearings or meaningful debate, was the so-called Durbin Amendment regulating the rates retail merchants pay when their customers use debit cards. Since debit cards are nothing more than electronic checking, the law essentially lowered the amount retail merchants paid for customers electronic checks. Sen. Durbin (D-Ill.) offered promises that his amendment would save retailers money that the retailers would then pass those savings along to shoppers, and all would have a Merry Christmas!
But just as Obamacare's promises of cost saving have been proven false, so have the promises of consumer savings from Durbin and those who voted for his price-fixing scheme. Retail giants like Wal-Mart and Target, who normally rake in the revenue during the Christmas holiday season, lobbied hard for the government to step in and regulate payment card fees. They went along with the false promises that reductions in the fees they pay would allow them to offer cheaper prices for consumers. Unfortunately, this was a gift that never arrived. Right now, they are crunching the Cyber Monday sales numbers hoping that their online sales will offset their in-store losses.
According to a study recently released by the Coase-Sandor Institute for Law and Economics, the Durbin Amendment has had a net cost to consumers of between $22 and $25 billion dollars. That's the value of over ten million Kindle Paper Whites on Amazon.com, two million Play Station 4s, and six million LeapFrog Leap Pads (in case you were wondering). It's also the total of what consumers will not be able to spend on loved ones and holiday expenses, thanks to increases in payment card costs.
Worse for consumers, banks that could no longer collect fees for electronic checking began reducing or eliminating what were formerly free checking accounts. So, not only did the Durbin Amendment fail to reduce the prices consumers pay at the register, it also raised their checking account fees. After it passed in 2010, in addition to the disappearance of free checking accounts, consumers witnessed an increase in miscellaneous bank fees and the loss of various card reward programs that were previously offered by banks and financial institutions. The amendment also triggered additional community bank-failures and local credit-union foreclosures across the nation, just as then-Fed Chairman Ben Bernanke said it would. This is what happens when, like Obamacare, massive bills like Dodd-Frank are passed without an adequate understanding of their potential consequences. How about that for a lump of coal in your stocking?
In collecting big profits from the Durbin Amendment at the expense of their customers, retailers have left their customers with less money to spend in both the brick and mortar stores and online. So when big retailers complain that consumers aren't spending as much this holiday season, they have themselves to thank for at least $20 billion of that, while consumers can also thank Washington. The law of unintended consequences is truly the gift that keeps giving.
Sayegh is a New York-based political consultant.