The more things change, the more they stay the same.
The National Association of Convenience Stores’ latest column on debit-card interchange fees is the most recent in the organization’s years-long effort to obtain government-mandated price controls. But such controls would only increase large retailers’ profits.
Consider the facts. The new Richmond Federal Reserve study finds that of the retailers that have experienced interchange reductions, few reduced the prices of their products and passed the savings on to consumers. Clearly, price caps have thus far failed to help customers at the cash register.
Consumers have also paid an additional price as a result of price controls. The Durbin Amendment has made it much more difficult for banks to offer free or low-cost checking accounts. Many banks previously depended on interchange revenue to support these types of accounts, which otherwise lose money for most institutions. When that revenue was cut, it became much more difficult to offer the same account services.
In fact, a George Mason University School of Law study found that since the Durbin Amendment took effect, more than 1 million people, mostly low-income families, have seen those accounts disappear or faced higher costs and new restrictions to using them. This translates into an annual transfer of between $1 and $3 billion from low-income households to the large retailers that have benefited from the fee cap, all because of price controls.
The fact is that price controls come with unintended consequences that arbitrarily create winners and losers in the marketplace. The Richmond study points out that sellers of “big-ticket” items saw their interchange costs on those items go down after the rule change, while sellers of small-dollar products saw their costs on those items go up. That’s a direct—and unintended—consequence of the government’s attempts to micromanage marketplace pricing. Market forces react to such arbitrary price controls in unforeseen ways.
Government shouldn't be in the business of dictating pricing on private-sector products and services, plain and simple. And the retail lobby shouldn't be in the business of recommending that the government intervene further. We highly doubt that any retailer would want price controls on the products that line their shelves.
The Durbin Amendment illustrates the negative consequences for consumers when policymakers choose winners and losers and distort the marketplace. Fixing the problem with more price controls is no solution.
Frank Keating, former Republican governor of Oklahoma, is president and CEO of the American Bankers Association.