Sometimes Regulation Is Needed

This morning while reading Hot Air.com, I came across Ed Morrisey's article "Remember the 'Durbin Fee' While Using Your Debit Cards".  In the article, Morrisey correctly targets Dick Durbin (Democrat), who added a little provision into the Dodd-Frank Financial Reform Bill that passed Congress before Republicans took over the House. Inside the bill was a Durbin installed power to federal regulators to cap debit card charges.

Why was this a good idea?  Well retailers were complaining about the amount of money the credit card processors and banks were charging for debit card purchases (an average of 44 cents per transaction).  Retailers were understandably frustrated with the situation, since debit card transactions are generally used for minor purchases, rather than major ones.  The idea was if the transaction fees were lower, retailers would be able to drop prices on some of their products, thus passing on the savings to the consumer.

The banks and credit card processors, who had ALREADY been campaigning for consumers to use the CREDIT CARD functionality of our debit cards because THAT pays a higher transaction fee even BEFORE the Durbin inspired transaction caps, objected.  I remember Chase trying to persuade me with gifts and "cash back rewards" to sign up for some plan that would have stuck it to my chosen retailers, who would have been forced to pay higher fees for my transactions.  Faced with the loss of billions of dollars in revenue, the banks, who had a strangle hold on the retailers, have turned now on the consumers.  If the retailers won't pay damn it, we'll take the money from consumers directly!  We have to please our stock holders!

Ed Morrisey from Hot Air uses this situation as a prime example of what happens when government regulations interfere with the free market system and to be honest, Dick Durbin's "surprise" that banks have levied use charges on debit card transactions is damning evidence.  And usually, I'd agree with Morrisey.  But not this time.

Retailers have NO options within the free market to find better credit card processors.  It's a limited cartel, almost a monopoly.  If Wal-Mart doesn't like the fees one bank is charging, they don't really have the option of finding another competitor who wants their business.  As a result, the free market system was already hampered.

I'm going to admit that I might be slightly biased against banks as it is.  Their ridiculous fee systems have stung me a number of times and my "free" checking accounts have been anything but, since I've easily paid in "fees" that monthly $10 charge.  If recent legislation hadn't corrected some of the worst offenses, there would be even more opportunities for banks to screw us over. 

I don't object to any business making money.  But when the common citizen can't FUNCTION without using a business, then the consumer requires protection.  So do retailers when they have no options against a monopoly.

While Dick Durbin sits there in stunned shock that BofA and other banks are charging $5 a month for debit card purchase privileges, I'm expecting the free market to do something about it.  See, I'm a BofA customer too.  And very shortly, I won't be.

I'm also writing Chase, who as yet have not applied those fees to me and my OTHER account, but trust me... if it becomes necessary, I'll find a bank that thinks customer relations is more important than padding their pockets.