Michigan May Fire Salvo Against Regressive Debit Card Price Controls

In the battle against Obamacare, the shots heard ’round the world were resolutions against the law by state legislatures. These resolutions led to court cases that have been victorious in two instances, and a new majority in the U.S. House Representatives that voted to repeal the law.

Now, the state of Michigan is poised to pass the first resolution against another command-and-control scheme, and there is bipartisan support for such a resolution. The target is the Durbin Amendment to the Dodd-Frank financial overhaul that Congress passed last year.

That measure sets price controls for the interchange fees that retailers pay issuing banks and credit unions to process debit card transactions. The Federal Reserve’s proposed rule implementing the provision explicitly sets prices at well below cost, excluding items such as fixed costs of infrastructure.

The Michigan resolution, which passed the state house  on Friday and is scheduled to be voted on in the Senate on Tuesday, lists many of the same concerns CEI has highlighted about costs being shifted to consumers, credit unions and community banks so that fat cat retail chains can get a “free lunch” on what they pay to proces debit cards.

It says in part: “Small issuers rely on debit interchange fees to provide free checking services to their customers and to cover costs associated with fraud prevention and data security. If these costs were not fully recoverable, small issuers would be unable to offer debit services to their customers, and the result could be decreased consumer choice and higher fees.”

In the House, the measure was approved by 36 Republicans and 12 Democrats. Given all that Michigan has gone through in the Great Recession, a statement from the legislature that part of a federal law is economically destructive should carry a powerful weight across the nation.