OPINION:
After a tour of Johnson Space Center in September 1989, future Russian Federation President Boris Yeltsin left a Texas grocery store amazed by the abundance of food options. Upon ascending to the presidency two years later, Yeltsin drew on the lessons from his American journey to launch an ambitious plan to dismantle Russia’s communist economy, remaining steadfast in his belief that Russia could thrive through a conversion to capitalism.
While his own country rationed what few products people could obtain, Yeltsin saw that market competition and consumer choice in America bred prosperity and abundance. Abundance is what our economy does best, even as we often take it for granted or fail to recognize that it thrives in direct correlation with the extent to which the government leaves the economy alone.
No industry better illustrates the dynamics of government’s grievous effects on market abundance and consumer choice than today’s debit and credit card market. This year marks the 15th anniversary of the Dodd-Frank Act and the Durbin Amendment, laws that rewrote the rules for debit and credit cards.
As credit and debit cards became the primary payment methods for consumers, large retailers began lobbying Washington to intervene and impose price controls on credit card fees. In 2010, their efforts paid off, as Sen. Richard J. Durbin, Illinois Democrat, pushed through price controls on debit card interchange fees in the massive Dodd-Frank legislation through an amendment that bears his name.
It was sold as consumer-friendly, but consumers have been paying for it ever since. Exhaustive research has shown that banks can no longer afford to offer services they once did. One study out of UPenn states, “For example, following Durbin, the provision of free checking accounts decreases by 40 percentage points.” Research from George Mason University shows similar effects, noting, “The total number of banks offering free current accounts fell by 50% between 2009 and 2013.”
Consumers may have benefited if retailers had lowered prices, but that didn’t happen. Research from the Richmond Federal Reserve indicates that retailers pocketed the reduced fees to boost their profits. It turns out that the Durbin Amendment was nothing more than a government handout to big-box stores.
Flash-forward to today, where Mr. Durbin has partnered with Sen. Roger Marshall, Kansas Republican, to push for even more government mandates on credit cards. In 2022, their punitive legislation thankfully failed. Two further attempts likewise failed, but their persistence is concerning and shouldn’t be taken lightly.
Messrs. Durbin and Marshall’s mandates would be the kiss of death to the countless benefits these cards provide consumers. Card users would see a steep drop in the number of benefits programs offered and a sharp decline in rewards themselves. Points, airline miles, hotel stays, redeemable cash and merchandise — poof, up in smoke. There would also be a higher risk of fraud and data breaches as Durbin-Marshall allows retailers to use less secure networks, ignoring consumers’ preferences for safer payment systems.
A key development occurred this month as Visa, Mastercard and the banks that issue their cards reached a landmark settlement to reduce and cap credit and debit card interchange fees for U.S. merchants. This agreement, which merchant groups estimate will save businesses more than $200 billion, is a significant milestone. Small businesses in particular stand to benefit from new flexibility, more transparent processing costs and a substantially reduced interchange rate cut by more than 25%.
The settlement now awaits review by U.S. District Judge Margo Brodie of the Eastern District of New York, with the reforms expected to take effect in 2026.
This comprehensive agreement renders further congressional intervention not only unnecessary but also potentially disruptive to a process that produced a win for all stakeholders.
It doesn’t take a leader from a failed communist state to understand that Washington mandates and price controls destroy consumer benefits, but one would hope a United States senator would. The lessons from the original Durbin Amendment are as clear as they are disturbing. Leaders in Washington need to see Durbin Part II for what it truly is: another pointless assault on consumer choice, market abundance and economic prosperity.
• Gerard Scimeca is chairman and general counsel for Consumer Action for a Strong Economy, a free market consumer advocacy organization he co-founded.
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