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Center-Right Groups Protest Durbin ‘Interchange Fee’ Amendment Pushing Through Price Controls and Benefitting Big Retailers

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Center-Right Groups Protest Durbin ‘Interchange Fee’ Amendment Pushing Through Price Controls and Benefitting Big Retailers

No Place for Corporate Welfare in Financial Regulation

Washington, D.C., June 17, 2010 – A coalition of 15 free-market and conservative  groups are calling on Congress to reject credit and debit card price controls that would serve as corporate welfare for some of the nation’s biggest retailers.  A letter sent today from leaders of the organizations urged members of Congress to drop an amendment by Sen. Dick Durbin (D-Illinois) to the final financial regulation bill putting government controls on “interchange fees” – processing costs – charged to merchants by payment card issues.

Signed by a broad spectrum of groups in the center-right coalition – including the Competitive Enterprise Institute, the Americans for Tax Reform, the Club for Growth, Eagle Forum, and state and Tea Party groups – the letter stresses that if the government puts price controls on interchange fees, “consumers will lose out, as retailer costs to process debit and credit cards will be shifted to the wallet of the average American cardholder.” 

The letter cites the experience of Australia, where consumers paid higher annual fees and lost rewards, such as airline miles, when the government pushed through caps on retailer fees.   Moreover, there is no evidence that these costs to Australian consumers were offset in the form of lower retail prices.

Noting the opposition of community banks and credit unions, the letter points out that, “America is unique in that a small bank or credit union from a small state can issue a credit card that can be used anywhere in the world.”  But this uniquely American payment card system would be threatened under the Durbin amendment, because “government controls of the market rates of credit and debit card networks will adversely affect all financial institutions that issue these cards, regardless of whether the final bill contains exemptions on paper for the size of institutions.”

Today’s coalition letter comes in the context of bipartisan opposition to the Durbin amendment in the U.S. House of Representatives, with more than 70 Democrats and 60 Republicans asking that the Senate measure be removed. For the center-right coalition, however, the issue is about reminding lawmakers to support free market principles consistently, even when business groups such as the retail lobby support a Big Government fix.

“CEI and many of the other groups on the letter have supported retailers when they have fought against mandates such as union ‘card check’ that coerces unionization and provisions in these financial bills that would regulate retailers as if they were banks,” notes John Berlau, director of CEI’s Center for Investors and Entrepreneurs and a signatory of the letter. “But as our letter states, ‘neither banks, retailers, nor other types of businesses should be able to call on Big Government to put price controls on the goods and services they freely purchase in a market economy.’”

 

The text of the letter is below:

June 17, 2010

Dear Speaker Pelosi, Minority Leader Boehner, Majority Leader Reid, and Minority Leader McConnell:

As leaders of groups representing millions of Americans that comprise a Center-Right Coalition, we oppose price controls in any sector of the economy. We also abhor corporate welfare - whether through direct taxpayer subsidies or through regulations that allow some businesses to push their costs onto other businesses and consumers. We, the undersigned organizations, on behalf of millions of American taxpayers, consumers and business owners believe it is not the role or responsibility of the government to intervene in what should be a private contractual relationship between retailers and payment card issuers. Therefore, we urge you to remove Sen. Durbin's "interchange fee" amendment contained in the Senate-passed "Restoring American Financial Stability Act" during negotiation on the final bill.

Sen. Durbin's amendment would order the Federal Reserve to set "reasonable and proportional" interchange fees for debit card processing fees that merchants pay to issuing banks - and would allow merchants to break provisions of their credit card contracts with banks and set unlimited "minimums" and "maximums" of what consumers can spend with their cards.

Although supporters of this measure cast it as benefiting small businesses and consumers, some of the biggest support from this bill comes from Fortune 500 retailers. And overwhelming global evidence shows that consumers will lose out, as retailer costs to process debit and credit cards will be shifted to the wallet of the average American cardholder. In studying the impact of interchange fee caps in Australia, Congress' Government Accountability Office found that card issuers there "reduced rewards and raised annual fees" for Aussie card holders. Worse, it appears that none of the $1 billion in savings that merchants received as a result of lower fees were passed on to consumers in the form of lower prices, the GAO noted. And capping debit card fees that retailers pay could be the end of "no-fee" checking accounts for consumers.

We are also concerned about the impact of these price controls on America's community banks and credit unions. America is unique in that a small bank or credit union from a small state can issue a credit card that can be used anywhere in the world. The Credit Union National Association and the Independent Community Bankers of Association are correct to note that government controls of the market rates of credit and debit card networks will adversely affect all financial institutions that issue these cards, regardless of whether the final bill contains exemptions on paper for the size of institutions.

We understand that retailers - big and small - face difficulties due to bad economic times and big-government mandates. Many of our organizations also support changes to keep retailers from being treated like banks by the new bureaucratic consumer agency the House and Senate financial bills create. But neither banks, retailers, nor other types of businesses should be able to call on Big Government to put price controls on the goods and services they freely purchase in a market economy and to disadvantage other firms and consumers. Therefore, the Durbin amendment should not be in the final House-Senate bill.

Members of the coalition are happy to discuss these issues further with you and/or your staffs.

Sincerely,

Grover Norquist, President, Americans for Tax Reform

Chris Chocola, President, Club for Growth

John Berlau, Director, Center for Investors and Entrepreneurs, Competitive Enterprise Institute

Phyllis Schlafly, President and Founder, Eagle Forum

Myron Ebell, President, Freedom Action

Richard W. Rahn, Chairman, Institute for Global Economic Growth

Colin Hanna, President, Let Freedom Ring

Richard W. C. Falknor, chairman, Maryland Center-Right Coalition

Lewis Uhler, President, National Tax Limitation Committee

Pete Sepp, Executive Vice President, National Taxpayers Union

Jim Martin, Chairman, 60 Plus Association

Karen Kerrigan, President & CEO, Small Business & Entrepreneurship Council

Lisa Miller, Organizer, Tea Party WDC

C. Preston Noell III, President, Tradition, Family, Property Inc.
Laura Lee Adams, Chairman, Utah Center/Right Coalition

Cc:
Members of the United States House of Representatives
Members of the United State Senate