A coalition of merchants — ranging from convenience stores to Home Depot — wants the government to impose price controls for their benefit. It’s a sticking point in the negotiations over the financial-regulation bill. The Senate bill directs the Federal Reserve to set a cap on the prices that debit-card issuers can charge to merchants for the use of their cards. The House bill does not contain the provision.
Sen. Richard Durbin, the Illinois Democrat, is the lead sponsor of the price control, but 17 Senate Republicans — out of 41 total — voted for his amendment. (Republicans who voted for the Durbin amendment: Barrasso, Brown, Burr, Chambliss, Collins, Crapo, Ensign, Enzi, Graham, Grassley, Isakson, LeMieux, Lugar, Risch, Snowe, Vitter, and Wicker.) Ten Democrats, including Senator Lieberman, voted against it.
The merchants’ lobby is generally pretty conservative. The National Retail Federation opposes card check, for example, and the Association for Convenience and Petroleum Retailing is dead-set against legislation to stop “price gouging” at gas stations. Perhaps these groups’ conservative leanings made them more persuasive to Republican senators.
Nobody should be persuaded by the quality of their arguments. The New York Times argues for the Durbin amendment on the ground that it is unfair that “the fees charged by the networks far exceed the actual cost of processing a transaction.” Apparently it is also unfair for card issuers to recoup their fixed costs. It further editorializes that “the amendment could . . . make it likely that customers would see lower prices.” We’re supposed to believe that the merchants are lobbying for the right to pass their savings on to customers. If customers really do end up paying less at the register, they’ll end up paying more in card fees. Or they’ll lose the convenience that comes from having access to the cards in the first place.
Many merchants would like to require customers to purchase some minimum amount before they can use debit cards. The card networks require merchants who participate not to impose any minimum-purchase requirements. The Durbin amendment blocks the networks from setting this condition, thus freeing the merchants to set the requirement. For a lot of customers, that will mean higher prices and added inconvenience.
Companies that provide debit cards for employees as part of their Flexible Spending Accounts might also find themselves set back by the Durbin amendment. The companies might end up scrapping the card system, or their FSAs, in order to avoid paying higher fees. Governments are increasingly using debit cards to administer benefit programs. Those too could be adversely impacted. George Mason University law professor Todd Zywicki raises this scenario: A family gets unemployment benefits through a prepaid card, then tries to use it to get a gallon of milk — and finds that the merchant won’t let them do it unless they buy more.
Merchants would like to pay less for using debit cards, of course, just as everybody would like to pay less for services. But the alternatives carry costs of their own. The use of checks is subsidized — the Fed runs the check-clearing system — but imposes costs on merchants in the form of bounced checks. Which set of costs is higher? In my experience, more stores have been taking debit cards in recent years, and more stores have been declining to take checks.
Price controls are rarely, if ever, a good idea. The Durbin amendment should be left on the shelf.
— Ramesh Ponnuru is a senior editor of National Review.