Some children's fairytale must illustrate the following lesson: When you seek to punish a foe, sometimes it's you who ends up paying the price. If there's not (and surprisingly, even as a mother of three who feels pretty well-versed in the fairytale lore, nothing comes to mind), some aspiring writer should get to work on it soon.
Many who bought into the idea that sticking it to big banks by capping their ability to charge for debit purchase might be newly inspire by the concept.
Todd Zywicki, writing in the Wall Street Journal, reminds us that the new government price controls of debit interchange fees will go into effect this weekend. The so-called "Durbin amendment" empowered the Federal Reserve to cap interchange fees, and the Fed took the opportunity to slash them in half. Banks are expected to lose about $6.6 billion in profits as a result.
Alas, that isn't the end of the tale. As IWF warned during debate about the regulation, banks aren't just going to swallow those billion dollar losses without changing their business model. They are going to haveto pass on costs to consumers, stop providing services that are less profitable, and cut other costs. Zywicki reports this is exactly what is happening in anticipation of Durbin's new price cap regime:
Some consumers who previously banked for free will be unable or unwilling to pay these fees merely for the privilege of a bank account. As many as one million individuals will drop out of the mainstream banking system and turn to check cashers, pawn shops and high-fee prepaid cards, according to an estimate earlier this year by economists David Evans, Robert Litan and Richard Schmalensee. (Their study was supported by banks.)
Consumers will also be encouraged to shift from debit cards to more profitable alternatives such as credit cards, which remain outside the Durbin amendment's price controls….
The most noticeable change will likely be the closure of bank branches, reversing a decade-long growth. Branches today serve as customer-recruitment centers, as customers, once enrolled, do much of their banking electronically, by ATM or online. By making many new customers unprofitable, however, the Durbin amendment eliminates the incentive to compete by offering more branches.
Citing the negative impact of the Durbin amendment and other regulations on customer profitability, Texas-based IBC bank recently announced its decision to close 55 supermarket-based branches, eliminating 500 jobs, rather than increasing banking fees. Other banks will inevitably follow suit.
So the result of this amendment will be decreased services and access to banking for those with low incomes, and job losses for those who work at local banks (and those job losses will of course ripple through the economy). In the end, the big losers aren't those evil banks that politicians love to demonize, but our economy, the poor, and the newly jobless.
Let's hope our nation's leaders grasp the lesson from this too-familiar Washington tale and stop this kind of economic-destroying regulation.