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Letter of Support: Repeal the Durbin Amendment's Debit Card Price Controls, H.R. 3156

October 13, 2011 J

Dear Representatives Chaffetz and Owens,

On behalf of more than 1.8 million Americans for Prosperity activists in all 50 states, I write in strong support of your recently introduced Consumer Debit Card Protection Act, H.R. 3156. Your bill would repeal the price controls on debit card interchange fees entirely, and prevent other agencies like the unaccountable Consumer Financial Protection Bureau from taking up these price caps on their own. This is a vital step towards restoring the market balance that was thrown completely out of order by poorly-conceived government regulation.

As you know, on July 21, 2010, President Obama signed into law the Dodd-Frank financial regulatory overhaul, which included a provision that allowed the Federal Reserve to place price controls on bank fees charged to process debit card transactions. Despite months of debate and hearings on the new provision—where politicians, bankers, economists, and consumer groups all warned of the damage the provision would do to the economy—on June 8 of this year legislation to delay the rules pending further study failed to gain enough support.

On June 29, the Federal Reserve issued its final rule stating they would be capping the fees at 24 cents per transaction on average, well below the 44-cent prevailing market rate. On September 29, just days before the price caps were scheduled to take effect, Bank of America announced that it would have to start charging a $5 monthly fee for the use of debit cards. Numerous other banks have also begun to end free checking in response to the price controls. Analysts widely agree that these monthly fees were needed to recoup revenue lost as a result of the new rules.

Price control advocates are feigning surprise at the market disruptions their scheme has created, but everyone could see this coming. Americans for Prosperity, for example, has been warning about these consequences for months. It’s simple economics. As much as some politicians would prefer, banks are not public utilities and they are not in the business of providing charity. Just like any other business in a market economy, they offer services that their customers want (in this case, convenient and secure electronic payment tools) in exchange for payment and profit. When government steps in with price controls that are well below market rates, banks have three choices: provide the service at a loss, stop offering the service all together, or find other ways to recoup their costs. Banks are mostly choosing the third option, shifting the cost from merchants to consumers – all because of government meddling.

The new fees on debit card usage are now coming to pass, but instead of accepting responsibility, the scheme’s authors are pointing fingers. In a floor speech on October 3, Senator Dick Durbin (D-Ill.) claimed Bank of America was “gouging” its customers and ordered Americans to “get the heck out of that bank.” In a statement on the same day, Congressman Peter Welch (D-Vt.) claimed that Bank of America and Citibank were “sticking the knife in by charging customers to get access to their accounts.”

Using the public spotlight to attack law-abiding private companies is reprehensible behavior for any public official, but especially so for these two given the direct role they played in creating this disruption. It’s clear now that this is nothing but a populist attack on “Wall Street” to win political points, but it’s doing harm to consumers and the economy in the process.

The solution here is not more regulation or political demagoguery. The solution is the free market. Let banks, merchants, and payment card networks work out interchange fees in a system of free and voluntary exchange. Let consumers decide what products work best for them at what prices, and let competition and innovation (not politicians) drive them to the best products. Repealing the debit card interchange price caps entirely and getting the government out of the way is the only way to restore balance in this market.

Americans for Prosperity is proud to support the Consumer Debit Card Protection Act, H.R. 3156 and similar measures to get government price controls out of financial markets. I urge your colleagues to support its passage, and I look forward to working with you in the future.

Sincerely,

James Valvo
Director of Government Affairs
Americans for Prosperity

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