Not With Banks, Not With Retailers, But With Freedom

In explaining my policy positions, I often find myself pointing out I am neither pro-business nor pro-bank, but pro-market. My Competitive Enterprise Institute colleagues and I might have a position that lines up with a particular industry group on one issue but opposes it on another. The only guide we have is which policies further consumer choice and the free market, and which restrict it.

Two events that have arisen over the past couple weeks illustrate this principle. Banks and retailers often are at opposite ends of a policy fight, and this is reflected in some high-profile provisions of the 2,500-page Dodd-Frank financial “reform” legislation. I find myself siding with bankers against retailers in one instance and with retailers against bankers in another.

In one instance, the Durbin Amendment controls prices on debit card processing fees for retailers. On this, I line up with the banks – and credit unions and community banks for that matter.

Retailers like the increased sales debit and credit cards provide as well as the lessened risk of fraud and theft when compared to cash and checks. But they want the government to put caps on what the banks and credit unions that issue the cards can charge them. The Durbin price controls within Dodd-Frank already have shifted the costs of debit-card processing from big retailers, such as Wal-Mart, to consumers, who have seen free checking virtually disappear from low-balance accounts.

Unfortunately, a flawed district court ruling last week requires the price controls to be even more stringent, which will increase costs even more for consumers and give billions of dollars more to the biggest retail chains. And as David Hogberg of the National Center for Public Policy Research points out, it may even lead to drastic actions such as the elimination of debit cards.The bright side is the more stringent controls increase the likelihood of a constitutional challenge to this taking and deprivation of property under the Fifth Amendment. See my OpenMarket post last week.

But if Wal-Mart or other retailers want to form their own banking units, I’m fine with that, even though attempts to do this have been opposed by established banks large and small. In the recent Wall Street Journal op-ed I co-authored, I hail the expiration of the provision preventing nonfinancial businesses from forming bank affiliates.

The United States was unique in having such a legislative ban. In the past few years, Wal-Mart has built banks in Mexico and Canada, and in Britain, discount retailer Tesco is now a major player in banking.

CEI Research Associate Kyle Tassinari and I write that such competition not only would lower prices and increase choice, but also would help end the perception of too big to fail. “For large firms to fail in any industry without significant disruption elsewhere, there must be new and competing firms ready to supply the product or service,” we conclude.

Too bad the Durbin Amendment and other provisions of Dodd-Frank also don’t automatically sunset. For that matter, every law should sunset at some point, so a debate can be had about whether it is serving its  purposes and the benefits outweigh the costs.

And at CEI,  it’s our job to ensure that liberty never sunsets, no matter which interest group’s ox is gored.