Zywicki in Washington Times: Durbin Amendment a Merchant-Driven Money Grab at Expense of Consumers

If the Durbin amendment to the financial regulatory reform bill survives in conference committee, consumers and small banks will be the losers, says Professor Todd Zywicki in an op-ed appearing in the Washington Times.

Zywicki predicts that consumers will see new fees or greater restrictions on their use of debit cards as a result of regulation of interchanges fees on debit transactions. Debit card issuers will lose money from their debit card operations, virtually insuring that costs will be shifted from merchants to consumers.

Further, Zywicki says, the reach of the Durbin amendment  overrides several provisions of card network contracts that relate to credit cards, as well as debit cards, that currently exist primarily to protect customers.

"But the provision that exposes the Durbin amendment as a merchant-driven money grab at the expense of consumers is that which permits merchants to override network rules on maximum charge levels," says Zywicki. "Consumers won't benefit from restricted competition and reduced credit choice, especially when financing more expensive purchases."

Durbin regulations are aimed at your wallet, Washington Times, June 2, 2010. By Todd J. Zywicki.

"Card network rules prohibit merchants from establishing minimum purchase floors in order to guarantee universal acceptance of cards. Merchants can request that consumers refrain from using cards for small transactions, but prohibiting card use below a minimum threshold is a violation of their agreements with the card networks. Does the profitability of Citi or Chase's credit card operations turn on whether cardholders can purchase coffee and a donut with their card? Hardly. But those provisions matter a lot to consumers who value cards because of their universal acceptance. Universal acceptance matters especially to tourists, business travelers and residents of high-crime areas who find cash inconvenient or dangerous to obtain and carry. Merchants would instead force them to buy additional products in order raise their overall spending enough to use their card. Many states issue unemployment, welfare and retirement benefits through prepaid cards, meaning that some families who want to buy only a gallon of milk might be turned away unless they buy more. It is easy to see why merchants like this arrangement; it is less obvious how the rest of us benefit. Merchants argue that they lose money on consumers who don't purchase enough to make a card sale profitable to the merchant. Perhaps, but merchants engage in all kinds of activities that guarantee that they don't make money on every customer who walks in the door - from the customer who uses a sales clerk's services without eventually buying anything, to free returns, to operating during hours when few customers shop. Yet even though merchants lose money on those who browse but don't buy, they make a business decision that those occasional losses on some customers are justified by the overall business value of providing helpful service and free returns. The decision whether to accept payment cards is no different."

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