Who Won Big in the Financial Bill – More Muscle for Big Merchants

It’s usually not that easy for big retail chains to win battles on Capitol Hill — particularly if they are trying to secure a benefit rather than fending off a tax or regulation. But with “financial reform,” Walgreens, Home Depot and even the infamous BP (a retailer through its ownership of gas stations) jumped into the fray using anti-Wall Street rhetoric and were able to lure lawmakers — knowingly or unknowingly — into inserting a provision that would give them a windfall at the expense of consumers. 

An amendment introduced in May by Senator Richard Durbin, a Democrat from Illinois, requires the Federal Reserve Board to set “reasonable and proportional” interchange fees for debit cards. Interchange fees are what merchants pay to process these cards. The senator actually invoked the costs to the Deerfield, Ill.-based Walgreens, one of the biggest drugstore chains in the country, in arguing for his measure. “I had the C.E.O. of Walgreens contact me last week,” Senator Durbin related on the Senate floor, “and he told me that when they look at the expenses of Walgreens, …it turns out the fees that Walgreens pays to credit card companies is the fourth-largest item of cost for their business.”

Left unsaid was why these costs of doing business, as opposed to any other, should be controlled by the government. Retailers take credit and debit cards because they generate more revenue and decrease the risk of theft and fraud that comes with handling cash or checks. A recent study by the New America Foundation concluded that when the benefits of bank cards to merchants are accounted for, “accepting card payments more than pays for itself.” 

But in the rush to get the “fat cats” from Wall Street, the Senate bestowed this favor on fat cat merchants. The vote count was interesting. Eleven Democrats voted against Senator Durbin’s amendment, but 17 Republicans voted for it. Those Republicans supporting the measure included normally stalwart conservatives like David Vitter of Louisiana and John Barrasso of Wyoming, who suddenly found that they didn’t mind price controls that much when big merchant muscle was behind them.

So the merchants were the winner in this battle, but overwhelming empirical evidence indicates consumers — whom this bill is ostensibly aimed at protecting — will lose out. Congress’ Government Accountability Office found last November, that after interchange price caps were pushed through in Australia, card issuers “reduced rewards and raised annual fees” for Australian card holders. And it found no evidence of the $1 billion in savings that merchants received as a result of lower fees being passed on to consumers in the form of lower retail prices.