It’s been three years since the Senate passed the massive Dodd-Frank financial reform legislation named after its two lead sponsors, Sen. Christopher J. Dodd and Rep. Barney Frank. Both men have since left the Congress, but their legacy legislation is being felt, and so far, the effects are not what Washington promised.
The Dodd-Frank bill was 2,300 pages long, and required more than 400 separate regulatory rule-makings by 11 federal agencies. The Heritage Foundation reports that Dodd-Frank “will swell the ranks of regulators by 2,849 new positions, according to the Government Accountability Office,” and notes that the average salary at the Securities and Exchange Commission is $147,595.
What do we get in exchange for giving high-paid Washington bureaucrats so much more power and money? As it turns out, not much.
Take the infamous Durbin Amendment to Dodd-Frank, which was introduced on the Senate floor at the behest of large retailers, with no hearings and little debate. It ordered the Federal Reserve Bank to fix the rates banks and debit-card companies could charge for electronic transactions. We now know the Durbin Amendment has not only failed to save consumers money, as Sen. Richard J. Durbin promised, but is harming consumers. How? Banks that depended on the per-charge fees (known as interchange fees) were forced to eliminate other customer services such as free checking and begin charging customers holding smaller account balances. The number of large banks that offer free checking has declined from 96 percent in 2009 to 35 percent in 2011. Politico reports that “the savings which were to be passed to consumers from the retailers post-Durbin Amendment continue to be mostly theoretical.” Even the bill’s lead sponsor, the liberal Democrat Mr. Frank from Massachusetts, has admitted the Durbin Amendment has failed consumers and should be repealed.
How about the Durbin Amendment’s promises only to regulate big banks, leaving smaller banks alone? Again, those promises turned out to be false. Credit unions and community banks have been struggling. They neither caused the financial crisis nor received bailouts. The Durbin Amendment is also forcing their debit-card fees down, since they have to compete with the larger banks in the marketplace. When government fixes prices for some actors in the market, eventually, customers will gravitate toward those lower prices, no matter how much politicians may claim the smaller banks were “exempt.” More than 200 smaller banks have failed in the wake of Dodd-Frank. Does it comfort them and their customers that politicians in Washington proclaimed smaller banks were “exempt” from the market distortions lawmakers created?
Plus, since community banks are being forced to stay below the asset threshold forced on them by DoddFrank, they are lending less money and making less money. This further strains smaller banks and limits the job growth we would otherwise see, since community banks are the ones that job-creating small businesses often rely on for expansion loans and lines of credit.
Did we know small banks would be hurt? Is it any wonder small banks are still failing and that unemployment is still so high?
With all this failure, a neutral observer might ask: Could any of these problems have been foreseen? Of course they could, and they were. Federal Reserve Chairman Ben S. Bernanke himself predicted that the Durbin price controls would hurt smaller banks when he said, “Because networks will not be willing to differentiate the interchange fee for issuers of different sizes, it is possible that that exemption will not be effective in the marketplace.”
Free-market watchdogs also foresaw the harm the Durbin Amendment would do to consumers. After the Federal Reserve complied with Mr. Durbin’s price-fixing scheme, Americans For Prosperity released the following statement: “The Fed announced an arbitrary price of 12 cents per transaction; this is a huge 90 percent reduction from current levels. Price controls on popular market functions always lead to either shortages or fee shifting. Consumers will begin to see either debit-card availability shrink or other fees on their checking accounts rise.”
So why did the Durbin Amendment pass? The sad truth is that just as with the recent Senate passage of an Internet sales tax, euphemistically named the Marketplace Fairness Act, the powerful retail-industry lobby has been hard at work demanding that Congress and President Obama regulate and tax their business rivals.
According to FreedomWorks, “Interchange-fee regulation is a classic example of one party using the force of government to take wealth from another. The Durbin Amendment was the result of successful lobbying on the part of retailers who clearly benefit from lower transaction fees.” The Competitive Enterprise Institute’s John Berlau put it this way: “What this comes down to is retailers simply wanting a free ride at everyone else’s expense.”
Three years after the Durbin Amendment passed the Senate, we have learned once again that whenever Washington politicians in either party tell you regulations are going to benefit you as a consumer, hold on to your wallet.
Tony Sayegh, a political consultant, is national political correspondent for Talk Radio News Service and a Fox News contributor.