Florida taxpayers should start to pay attention to a debate that is playing out behind the scenes in the halls of Congress and would have a very real effect on Floridians.
Some in Washington want to expand the Dodd-Frank Wall Street Reform and Consumer Protection Act, one of the largest sets of regulations in the history of our country, to include the way that your credit card transactions are processed.
As part of Dodd-Frank, which made sweeping changes to the American banking system more than a decade ago, a small provision had an outsized impact on debit card payments. Illinois Democratic Sen. Dick Durbin introduced an amendment establishing federally mandated price controls on the fees associated with debit card transactions and regulations on how those transactions could be routed.
During what little debate on the issue occurred before it was passed, proponents argued that these changes were going to help consumers by lowering prices.
In the ensuing decade, it has become clear this change really did impact consumers, just not in the way that was promised.
Prices did not go down. In fact, studies have shown that the vast majority of retailers did not lower prices and in some cases raised prices as a result of the debit card price controls. Retailers failed to pass any savings onto consumers.
Unfortunately, that wasn’t the extent of how consumers were harmed, they also lost access to many benefits, like free checking accounts.
A Federal Reserve study found that the availability of free checking accounts at banks targeted by the Durbin Amendment declined by 35%. Dodd-Frank carved out an exemption for smaller banks and financial institutions on debit cards, defined as those with less than $10 billion in assets. However, even at institutions that were exempted, access to free checking accounts declined by 15%.
Consumers didn’t pay lower prices and lost access to free checking accounts.
Why should Floridians pay attention to a set of decade-old regulations? Congress is not content with letting lessons learned to establish good policies. So now we have talk of another bill putting these regulations on credit card transactions.
Like those who lost access to free checking accounts, millions of Americans could lose access to credit. Credit cards without an annual fee would greatly diminish or disappear altogether. Based on history, we know that this policy doesn’t reduce the prices you pay, but it would increase the cost for you to buy things in the form of annual fees.
Many Floridians rely on rewards programs to help with the cost of family vacations or even everyday purchases. New credit card regulations would put those programs in jeopardy and could end up costing Americans $50 billion per year in rewards program benefits.
In theory, we know that price controls and regulations can have a negative impact on consumers. However, in this case, we have a real-world example of how these policies hurt Floridians.
Why on earth would politicians in Washington expand them?
Tony Carvajal is executive vice president and Jonathan Guarine is a research economist at Florida TaxWatch.