As financial vote fails in Senate, Florida shows how to really protect consumers from deception

Yesterday, the Senate failed to achive the 60 votes necessary to move forward on the Restoring American Financial Stablity Act. All Republicans present and Sen. Ben Nelson (D-Neb.) voted against the bill in a 57-41 that was three short of cloture.

CEI, along with a broad spectrum of groups in the Center-Right coalition, signed a letter expressing opposition to the bill’s bailouts, taxation and overregulation. On the latter point, there is widespread concern about a giant new bureaucracy created by the bill called the Consumer Financial Protection Agency that would have a $700 million budget and little oversight by Congress or other agencies.

What alarms many market-minded individuals is that advocates of the CFPA say it will not just police financial products that are fraudulent or deceptive, but will ban those that fall into the category of other terms like “abusive” that are wholly arbitrary and at the discretion of bureaucrats. This would limit consumers’ choices and opportunities.

As the Center-Right letter stated, “While we believe the government should act swiftly to punish financial fraud, it should not diminish Americans’ choices and opportunities in the name of ‘stability.'”

What kind of consumer regulation acts to protect consumers from deceptive advertising without limiting the choices they make or informed risks they can take. If our federal lawmakers want an example of reasonable consumer regulation, they may want to look at a bill on the verge of passing the Florida legislature that takes on deceptive surcharges some retailers add to debit and credit card purchases.

 This piece of legislation helps make the case that we don’t need a giant new bureaucracy or sweeping federal rules to ensure consumers have accurate information. Often, simple rules are the most effective for consumers and least burdensome for business.

The bill, HB 621, unanimously passed the Florida House of Representatives last Friday. Just a few pages long, in contrast to the 1.336 financial bill in the Senate, the law imposes a simple non-costly requirement on the posting of prices at retailers in the state.

It says that retailers can’t add surcharges at the checkout counter for debit card purchases, updating a state law that has long banned these surcharges for credit card purchases. The law, however, leaves retailers free to offer a discount for cash purchases.

Why allow discounts, but not surcharges? Because surcharges can often mean inaccurate pricing, and can hit consumers when it it too late to change their minds based on the omitted information.

 The most prominent example is that of gas stations. Imagine you see a sign from the street saying that gasoline is $2.50 per gallon. You pull in and fill up. Then you discover you were charged and extra 5 cents per gallon because you used a credit or debit card. What are your options? You can’t exactly put back the gas you have pumped into your car!

Yet under this law, if merchants are transparent in their pricing, they can still offer discounts if they want to encourage their customers to use cash or to recoup what they say are the costs of credit card processing. Though, as Ryan Radia and I wrote in our study “Payment Card Networks Under Assault,” the interchange fees and other costs that retailers pay to credit card issuers are often outweighed by the costs and risks of fraud and theft from payment by cash or checks.

Florida’s bill may not be the only way to attack deceptive retail pricing. But it is one innovation from the state governments that are laboratories of democracy. In addition, and in an example of what CEI President Fred Smith calls “competitive regulation,” most credit card issuers prohibit merchants from imposing these surcharges as a condition of their contracts.

So why again, do we need a huge new federal bureaucracy, when states and private contracts are attacking specific problems in a more targeted and streamlined way?