The Durbin Fee

Hold on to your wallet: The Durbin Amendment goes into effect Saturday. The once-obscure amendment to the Dodd-Frank financial-reform bill limits “interchange fees,” which banks charge to merchants for providing the service that allows stores to accept debit-card payments. The fees were cut by some 80 percent, which makes it less profitable for banks to offer debit-card services. So the banks have done the natural thing and begun to transfer the fee from merchants to their customers, with Bank of America announcing a new $5-per-month fee for debit-card users.

Naturally, the amendment’s author, Sen. Dick Durbin (D., Ill.) is in a rage, complaining that the banks are “sticking it” to consumers. He ought not be surprised: What is happening is precisely what was predicted by industry experts and by the banks themselves. Running a debit-card network costs money, and banks are not going to do it for free or suffer reduced profits gladly. As is usually the case, what we have here is one special-interest lobby (retailers) using its political clout to prevail over a marketplace rival (the banks) to secure for itself a bigger piece of the action. Mr. Durbin, being a senator and a Democrat, cannot resist the urge to stick his nose into controversies better left to the marketplace. Not coincidentally, one of the nation’s largest retailers, Walgreens, is located in his state, and the firm’s CEO lobbied hard for the new federal price controls on debit-card fees.

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