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  • Dodd-Frank Already Failing Consumers

    The Wall Street Journal reports today:

    Banks are considering additional fees on credit cards and checking accounts. But they also are looking at new ways to make money on cash machines and especially debit cards as regulators pinch the cards’ conventional revenue streams.

    And what exactly is to blame for all of these new fees and restrictions? WSJ reports: “The proposals, released last month, are part of the Dodd-Frank financial-overhaul bill that was enacted last year.” So much for Congress’ claim that Dodd-Frank would save consumers money. Before the bill was passed, Heritage Foundation analysts David John and James Gattuso predicted:

    The bill would also eliminate part of the fees paid by retailers to credit card companies for the use of debit cards. The part that is being eliminated goes to the financial institution that issues the card, and the loss of this income may cause certain issuers to either drop their cards or limit their availability. This fee applies only to large banks, with fees going to smaller financial institutions, state governments that use debit cards to pay certain types of benefits, and certain other card issuers still being allowed.

    Rather than make the financial system safer, it reduces firms’ ability to handle risk. And rather than help consumers, it raises their costs, reduces their choices, and hinders the capital formation necessary to make them more prosperous.

    Also in the WSJ, George Mason University Law School Professor Todd Zywicki detailed yesterday how Dodd-Frank was enabling the return of the loan shark:

    And how will the market respond to the so-called Durbin Amendment to the Dodd-Frank banking reform law, which places price controls on debit-card interchange fees (which retailers pay for accepting cards)?

    Pursuant to the law, the Federal Reserve announced before Christmas that it plans to slash the interchange rate to between 7 cents and 12 cents, a 90% cut from the current rate. While this will provide a major windfall to big-box retailers and other merchants, the impact on consumers will be devastating—and again low-income consumers will be the hardest hit.

    Many low-income Americans will be unable to qualify for free checking under the new fee regime, meaning they will have to pay higher fees or simply drop out of the banking system. Financial products that cater to unbanked consumers—check cashers, pawn shops, purveyors of nonbank prepaid cards—can expect to benefit from the Durbin Amendment, just as payday lenders have prospered as a result of credit-card regulations.

    Nontraditional financial products serve an important role in the marketplace for the millions of consumers who count on them. Even pawn shops and loan sharks are more palatable and less expensive than the bounced checks and utility shut-offs that would result in their absence. Still, low-income consumers aren’t better off when they have to rely on such lenders because paternalistic regulations have deprived them of a credit card. And just wait until the Consumer Financial Protection Bureau comes on line, increasing costs and further restricting credit for low-income consumers.

    Posted in Economics [slideshow_deploy]

    13 Responses to Dodd-Frank Already Failing Consumers

    1. Charles Kyriacou says:

      Is there anything that doesn't go up in price when the government gets involved?

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    4. Bobbie says:

      Time to hold higher standards and those accountable. Clean the corruption and the clowns that commit it.

    5. Roger Beverage, Okla says:

      Dodd-Frank will end up costing consumers a lot of money and, at the same time, narrow their choices in the marketplace. Moreover, it will force a number of smaller, traditional banks and credit unions to merge in order to survive. Anyone who thinks otherwise either hasn't read the bill or doesn't understand that banks are a business and must be profitable to survive. Maybe both. Neither have they studied the recent history of banking in the United States about how the "good guys" have been able to make it to this point and what community banking is all about.

    6. MJF, CT says:

      Here again, government sticks their nose into something that they know nothing about and we have to pay the price for it.

    7. Pingback: Must Know Headlines 1.7.2011 — ExposeTheMedia.com

    8. Steve, FL says:

      Once again the government has poked their nose where it was not necessary. The last I looked, no one has a gun to the head of merchants to accept credit cards or debit cards. Due to the Walmart Lawsuit, the merchant can opt out of credit cards or debit cards. Also how would a merchant selling cigars like it if the goverment shows up and says to a private business, your pricing is too high you will have to lower it. That is exactly what they have done here. If I was the Issuers I would allow the merchants to continue to accept debit cards for .07-.12 but merely store the card info until the end of the day at which time send the batch for collection. If the money is in the check acct then the merchant is good, if the money is not there then the merchant is out the money and the goods. That is all that .07 a trans is worth. If they want to guarantee the transaction then they need to pay an additional fee ,JUST LIKE THEY DO NOW. What a novel idea.

    9. Belinda, Ohio says:

      While I do think that we need some financial regulation to prevent the crisis we had, I also think that the federal government will use this as an excuse to expand its power in areas it doesn’t need to. There are a lot of different businesses that will be affected by this new agency that didn’t have anything to do with the financial crisis. Starting over and coming up with some reforms that both sides can agree on would be best for eveyone!

    10. Pingback: The Regulatory Tsunami Headed Your Way | The Foundry: Conservative Policy News.

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    13. Pingback: Guest Post: Blame Washington Democrats’ Economy, Not the ATMs!

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