Letter of Support: Tester-Capito Debit Card Interchange Rule, S. 575 and H.R. 1081
Dear Senator Jon Tester and Representative Shelley Moore Capito,
On behalf of more than 1.7 million Americans for Prosperity activists in all 50 states, I applaud you for introducing the Debit Interchange Fee Study Act (S. 575) and the Consumers Payment System Protection Act (H.R. 1081), bills to delay implementation of price controls on debit card transactions and to study the impact of the proposed rule. This rule is the latest example of regulators going beyond congressional intent, a problem that will likely worsen if Congress fails to exercise effective oversight as the hundreds of rules authorized by Dodd-Frank move forward.
The Durbin Amendment was added to the Dodd-Frank bill in a rushed attempt by retailers to leverage concern over the financial crisis to their advantage. Senator Durbin claimed that his amendment would not result in the Federal Reserve setting debit interchange prices, but the Fed’s proposed rule does precisely that, setting price controls at 12 cents per debit transaction.
This arbitrary rate is far below the current market rate and is having distortionary market effects. Instead of simply lowering merchants’ reimbursements to credit card companies and banks as Durbin claimed, the banks have shifted the fees from merchants to cardholders. Many banks have stopped offering the very popular free checking account and limits on debit card usage will not be far behind. When government sets price controls, cost shifting and product shortages nearly always result.
Debit cards are one of the most popular and convenient consumer financial instruments. Congress must step in to protect consumers from the arbitrary price caps the Fed is advancing under Senator Durbin’s amendment. A temporary delay on the rule’s implementation is the least Congress should do. Your legislation’s inclusion of a study to understand the impacts is also well taken. However, I urge all legislators to conduct these types of studies before they transfer broad rulemaking authority to unelected federal officials, not after.
I applaud your efforts to undo the damage Senator Durbin’s amendment is already doing to the consumer financial instrument market and urge your colleagues to support your legislation. I look forward to working with you in the future.
Director of Government Affairs
Americans for Prosperity