Dodd-Frank
The Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111–203, H.R. 4173; commonly referred to as Dodd–Frank) was signed into federal law by President Barack Obama on July 21, 2010. Passed as a response to the Great Recession, it brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression. It made changes in the American financial regulatory environment that affect all federal financial regulatory agencies and almost every part of the nation's financial services industry. As with other major financial reforms, a variety of critics have attacked the law, with some arguing it was insufficient to prevent another financial crisis (or more bailouts) and others contending it went too far and unduly restricted financial institutions. President-Elect Donald Trump's transition team has vowed to dismantle the Dodd–Frank act.

Durbin’s Debit-Card Price Controls Hit the Poor Hardest

5/2/17
from The Wall Street Journal,
5/1/17:

Limits on fees lead banks to charge the poor more for other services—or to stop offering them at all.

On Tuesday the House takes its first step toward reforming the Dodd-Frank Act when the Financial Services Committee marks-up Chairman Jeb Hensarling’s Financial Choice Act. One surprisingly contentious provision of Mr. Hensarling’s bill—dividing even Republicans usually suspicious of price controls—is also one that could do the most good for small businesses and American consumers: repeal of the so-called Durbin Amendment. Sen. Richard Durbin’s 11th-hour addition to Dodd-Frank imposed price controls on the service fees banks with more than $10 billion in assets can charge merchants who process debit-card payments. As implemented by the Federal Reserve in 2011, the amendment ended up cutting these interchange fees in half—from 51 cents to 24 cents per transaction, on average—costing banks $8 billion to $14 billion annually. Although Mr. Durbin promised a safe harbor to community banks and credit unions, his amendment contained other provisions that have driven down their rates as well, by 19% in the case of PIN debit transactions. Mr. Durbin asserted at the time that “every single Main Street business” would benefit from lower costs, and that they would pass those savings on to consumers in the form of lower prices at the register. But as we (with co-author Geoffrey Manne ) demonstrate in a new report for the International Center for Law and Economics, it hasn’t worked that way. While big-box retailers and their shareholders have managed to pocket more than $40 billion in cost savings so far, most Main Street businesses and the poorest American households have suffered.

First, costs for most retailers haven’t fallen.

Second, Mr. Durbin’s theory ignored that banks would have to recoup their lost revenue in other places. Since the amendment’s enactment, banks have slashed access to free checking (which has fallen from 76% to 38% of accounts since 2008), doubled monthly maintenance fees on other accounts, raised other monthly fees, and increased the mandatory minimum balance to qualify for free checking from $109 in 2008 to $670 last year. In addition, affected banks have almost completely eliminated rewards on debit cards, amounting to an effective 1% price increase on all goods and services for consumers.

Wealthy households have largely avoided the Durbin Amendment’s sting by shifting purchases to rewards-rich credit cards and raising their monthly balances to hang on to free checking. Lower-income families, by contrast, are either paying hundreds of dollars in new bank fees or have been driven out of bank accounts entirely, turning instead to check cashers, pawnbrokers and other financial providers that cater—at higher cost—to unbanked consumers.

Retailers and their lobbyists nevertheless continue to point to a 2013 study by economist Robert Shapiro that claims that merchants would pass most of their cost savings on to shoppers. But this assumption is based on a woefully incomplete analysis and is contradicted by the actual experience reported in the Richmond Fed study. Mr. Shapiro also claims that Sen. Durbin’s price controls would create 37,500 additional retail jobs through increased consumer spending and retailer reinvestment of savings in the first year alone. Besides being implausible on its face, his back-of-the-envelope calculation inexcusably ignores the effect of sucking $40 billion out of the retail banking system, which has contributed to the elimination of thousands of the industry’s jobs.

Moreover, he ignores that many small businesses saw their costs increase and consequently raised prices or laid off workers.

Price controls don’t work, and the Durbin Amendment is no exception.

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