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Dodd-Frank's Dire Legacy: The Durbin Amendment
07/31/2015 at 07:29 am - Iain Murray

President Obama signs the Dodd-Frank Bill

Iain Murray is the Vice President for Strategy at the Competitive Enterprise Institute.
This post appeared on the CEI website on July 21, 2015

Today is the fifth anniversary of the passage of the Wall Street Reform and Consumer Protection Act, better known as Dodd-Frank. As the Mercatus Center revealed this week, it may be the biggest law ever written, because it gives the administration so much discretionary power to make secondary law. It has harmed consumers by reducing choice in financial services and failed to solve the problems it was purported to solve, as I outline in my new paper, How Dodd Frank Harms Main Street. One of the worst examples of this stems from the Durbin Amendment, a last minute addition to the bill that gives the Federal Reserve the power to cap interchange fees  charged by debit and credit card networks. An interchange fee is a facility fee paid by a merchant when a customer pays using an electronic card network like MasterCard or Visa. The customer gets the convenience of using a card rather than cash, the merchant gets paid with protections against fraud, the card issuing bank gets an incentive to keep issuing the cards, and the card network gets some money to reinvest in improving the efficiency and security of its network. The merchant, bank, and network all get some profit and the customer gets an item of value. All parties see some gain from the trade. So far, so much Adam Smith. Yet unfortunately merchants all over the world bridle at having to pay the fee. In yet another example of Bastiat’s “seen and unseen,” they see the fee and have formed powerful lobby groups all over the world aimed at persuading governments to impose limits on the fees.  Merchants argue they will be able to cut prices once a cap is introduced and that the fee is a hidden charge on the  consumer.

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