June 8 2011
More Government Overreach: Price Fixing for Debit Card Transactions
Carrie L. Lukas
Today, the Senate voted against an amendment that would have postponed the implementation of a rule dictating how much banks can charge stores for taking payment with a debit card. This is a classic example of government pushing rules that they claim will help the little guy, but which turn out to make the little guys' life much worse.
Proponents of the measure focus only on one side of the ledger: they think banks charge too much for the use of debit cards, which hurts retailers and results in higher costs for customers. So they set a lower price. That's a big win for customers and retailers, right?
Wrong. Proponents of the regulation ignore how lower payments for debit card use will lead to other consequences. For example, right now, banks often offer free checking accounts with no minimum balance. That's nice because people who don't have a lot of money can safely store their money and write checks, without incurring a cost. Banks provide this service for people who don't keep large balances (which are how banks typically make most of their money) because they know that people with checking accounts also tend to use debit cards instead of credit cards, so they'll make money on the transactions with stores. If banks can no longer make money on those transactions, then it won't make economic sense to provide free checking. This means that those with less money will have to pay a monthly fee to have a checking account-bad news when you are already on a tight budget. As a result, some will likely chose to opt out of the banking system entirely.
Just how many people will be pushed out of the banking system because of the new regulation? Estimates vary, and the amendment considered today would have just postponed the new rule until a study could be conducted on the likely effects of the measure. Yet the Senate decided that it didn't need to wait for information about how government's latest price fixing scheme would shake out in the real world-it would just let government overlords begin making their determinations and watch the effects in real time.
Personally, I don't think postponing the implementation of this regulation is enough. I'd like to see the study that says how many fewer poor and young people have access to checking accounts because of this new government regulations, but regardless of the findings, this type of regulation and government micromanaging of the economy should be rejected. Government simply shouldn't be in the business of deciding how much one entity should charge another for a service. It's none of its business. Retailers don't have to accept debit cards if they think the price is too high. There is simply no need for bureaucrats to intervene.
I wish the Senate had voted to study the issue, but more than that, I wish they stopped to consider what it means to have a limited government.