The P.A.

A weekly address from Patrick Adams,
President of St. Louis Community Credit Union

Senate’s Proposal On Debit Cards Will Hurt Us All

On May 17th, 2010, posted in: Uncategorized by 2 Comments

It never ceases to amaze me.  Elected officials who go to Washington D.C. to represent, help and protect their constituency seem to show up, settle into their respective offices and lose their collective minds.  At least 66 senators did so this past week.

Only Las Vegas has the same effect.  People show up relatively normal and then proceed to go crazy. It happens more quickly in Vegas, but the result is the same.  They spend money they don’t have, they become unduly influenced by people they’ve never met, they get caught up in the excitement of where they are, and then BOOM – they make a whole bunch of bad decisions – and justify it through “group-think,” i.e. “everybody’s doing it.”

What happened?  I won’t get into a lot of detail.  But basically, the fees that big debit card issuers charge merchants (for the purpose of assuming the risks related to issuing the cards to consumers) are proposed to be constrained by legislation introduced by Senate Majority Whip Richard Durbin of Illinois.  Senator Durbin was motivated by what he described as the “terrible” attitude that debit card issuers have against merchants.  Really?

So what does this mean for the great residents of Illinois who elected Durbin to represent them?  It’s yet to be determined, but early results are in.  I think the honorable Senator from Illinois and 65 others honestly believe that limiting the interchange fees paid by merchants will result in lower prices at the cash register.  Right?  I mean that has to be it.  Otherwise, there is absolutely no sense for Senator Durbin to add an amendment to a bill at the 11th hour without even so much as a debate in order to alleviate some “business-to-business” spat between merchants and debit card issuers.

Here we go again!  The unintended consequence of Senator Durbin’s attack on the big debit card issuers, Bank of America, Wells Fargo and Chase, is obvious to me and most others outside of our nation’s capital.  Lost revenue on debit card programs will be made up on other consumer banking products.  Washington D.C. just does not seem to get it.  Private sector business will make the money necessary to pay their stockholders an attractive return on their investment – come “hook or crook.”  What’s the likely source of making up the difference in lost revenue?  The consumer: you and me, baby!

Unintended consequence #2 will affect small debit card issuers.  Credit unions will be hurt, as well.  Some so adversely affected that they may not be able to afford to offer their programs anymore.  That minimizes the competition and, as a result, the big boys will have no checks and balances in setting their new prices on products.  Uh-oh!!!  Consumers are hurt again and again and again.

The sad irony keeps repeating itself.  Legislators, elected to help consumers, continue to attack the “banking industry villains” (that inadvertently includes credit unions) with the intent of helping their constituents to be better off.  Bankers (credit unions, too) will pass the costs of the new restrictions onto consumers with new, more expensive pricing and fees – all in the spirit of capitalism.  It’s just what happens.

Senator Durbin, please sir, if you want to gamble, go to Vegas.  There, your bad decisions only affect you, I think.

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