Today, US Representative Ted Budd (R-NC) made the case that the Durbin Price Control is a failed policy built from the mold of other failed past attempts at price control. Budd’s line of questioning drove home how the Durbin Amendment’s price caps are hurting consumers and the economy at large.
“The Durbin Price Control is a failed policy, based on past unsuccessful attempts at government control of prices. Access to the financial system is a crucial first step to moving up the economic ladder," said Rep Budd. "The Durbin Price Control has knocked out the bottom rung by adding more than a million Americans to the unbanked population. The federal government should be helping working-class Americans, not throwing up barriers to their success through regulations.”
Budd: Thank you, Mr. Chairman and Dr. Michel. Let’s talk about price controls, which are put into place on the theory or belief that the market for a good or service just isn’t working. We have a long history of trying to do that in our country. Nixon in 1971. Carter in 1980. And if you look at it recently outside of our country the Venezuelan food price controls. They were unsuccessful and are unsuccessful. So, Dr. Michel, the Durbin Amendment, which is a price cap, is it helping the American taxpayer or is it failing like these other attempts?
Michel: It’s failing like other price controls always do. Somebody finds a way around it, somebody finds another way to get the money that they lose from the price control, and we see that already. And it ends up not helping people it supposedly was going to help. Not that I believe that, that they really wanted to help the people they say.
Budd: So about those people, the consumers in terms of the effect on their pocketbooks, the Richmond Fed has said that a sizable fraction of merchants raise their prices or debit restrictions as their cost of accepting these debit cards increase. However, few merchants reduce their prices as these costs decrease. So take ideology and history out for a second, the bottom line is that consumer pocketbooks, these people we’re talking about, are you saying they’ve been hurt in terms of increased banking costs, and they haven’t seen any other relief in prices. Is that correct?
Michel: The evidence ranges from unaffected to harmed.Yes, that’s correct.
Budd: So these consumers that it was supposed to help, why didn’t it?
Michel: The idea that we were going to get rid of a regulation for a small group of retailers and those retailers were going to just pass that cost savings on to consumers is fantasy. And then there would be no other impact, with nobody who’s lost the revenue trying to pick it up from somewhere else, that’s just not practical.
Budd: Mr. Allison, from my hometown, you mentioned something about at the end of the day somebody pays. Could you care to reiterate on that?
Allison: The Durbin Amendment has been particularly bad for low-income consumers. Banks were providing free checking accounts and the way they were doing that is with debit card fees that the merchants were paying. The Durbin Amendment is a huge subsidy for big merchant for Walmart at the expense of low-income consumers. Banks are kinda neutral on it because they just cut out free checking. Low-income consumers are being huge losers. Now the way banks have been hurt is because they invested billions of dollars in developing the technology to make this system work. You’ve lost part of the incentive to invest in technology that consumers might benefit because it might be stolen by legislation. Price controls never work.