Wright and Zywicki in Washington Times: Consumers Will Pay for Durbin Amendment
Writing in The Washington Times, Professors Joshua Wright and Todd Zywicki explain their view that an amendment to financial regulatory reform proposed by Senator Richard Durbin will be costly for consumers.
Durbin's provision imposes price controls on debit card interchange fees, requiring the Federal Reserve to set allowable charges of interchange at a rate "reasonable and proportional" to the incremental cost of processing the transaction. Durbin defends the amendment on the belief that Visa and Mastercharge hold over 80 percent of the payment card market, allowing them to stifle competition.
"That's good rhetoric but bad economics," say Wright and Zywicki, arguing that Durbin's amendment is "squarely contradicted by developments in antitrust law and economics over the past three decades."
"The current state of economic knowledge does not support the conclusion that low prices and spirited competition for consumers is a bad thing or that consumers and the economy will be improved by increasing bank fees for consumers. We do believe that a consensus of serious economic analysis holds that the presence of two major card networks in and of itself is largely irrelevant to the analysis," they say.
Durbin's antitrust fantasies: Flawed economics behind Democrat's price control plan, The Washington Times, June 18, 2010. By Todd Zywicki and Josh Wright.
"Interchange fees on debit cards, a portion of the cost paid by the merchants when a consumer uses a payment card, currently average about 1.2 percent of the value of a transaction (credit card interchange fees are higher but are excluded from the price controls). The Durbin amendment would dramatically reduce this fee, most of all because it excludes the fixed costs of banks servicing consumers, a cost currently defrayed in large part by interchange fees. The result would be to shift those costs onto consumers, resulting in the end of free checking for many consumers, new fees or limits on debit card transactions and higher overdraft charges. In exchange, consumers are given a speculative promise that some undetermined part of this merchant cost reduction might get passed on to them in the form of lower retail prices. No guarantees, of course."