Expanding Dodd-Frank is a Bad Deal for Consumers | Citizens Against Government Waste

Expanding Dodd-Frank is a Bad Deal for Consumers

The WasteWatcher

Some lawmakers on Capitol Hill are looking to expand parts of the Dodd-Frank Act.  If these lawmakers get their way, consumers will get the short end of the stick and the government will become more involved in everyday financial decisions by consumers.  Congress should let a free market remain free and allow consumers keep products they are happy with.

The Durbin Amendment, which was included in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, put a limit on interchange fees that banks charge retailers for debit card transactions.  Supporters of the original amendment claimed that because retailers would be charged less, those savings would be passed on to customers in the form of lower prices.  However, the promised results never happened.  Instead, banks and card issuers had less revenue and responded by doing away with rewards programs for debit cards.  According to an estimate by the University of Chicago, consumers lost between $22 and $25 billion as a result of the implementation of the Durbin Amendment.  The original Durbin Amendment took a once popular and widespread program and made it into one that is rarely seen today.    

Despite the negative effects a cap on interchange fees created in the past, some members of Congress think it is a good idea to now expand the Durbin Amendment to credit cards.  The Credit Card Competition Act of 2023 was introduced by Sens. Dick Durbin (D-Ill.), Peter Welch (D-Vt.), Roger Marshall (R-Kan.), and J.D. Vance (R-Ohio) in the Senate, and Reps. Lance Good (R-Texas), Thomas Tiffany (R-Wisc.), Jeff Van Drew (R-N.J.), Max Miller (R-Ohio), and Zoe Lofgren (D-Calif.) in the House of Representatives.  While supporters of this renewed effort are making similar claims of lower fees and increased competition, the results will be the same as the last time.  Any savings gained will likely be retained by retailers and not passed on to customers, and consumers will likely lose beneficial credit card rewards. 

Supporters of the Credit Card Competition Act also miss the mark when they claim the payment processing market is dominated by a duopoly of Mastercard and Visa.  American Express, Discover, financial technology companies, buy now pay later products, and peer-to-peer payment options continue to innovate and offer alternatives to Visa and Mastercard.  The financial industry is competitive and continues to innovate and create new alternatives in the payment processing marketplace. 

Credit card rewards programs are incredibly popular with consumers.  The Federal Reserve estimates that 84 percent of Americans have a credit card with a rewards program.  These rewards incentivize consumers to spend more at retail locations covering the cost of interchange fees.  Consumers also use these benefits to travel and buy essential items like groceries and gas. 

Lawmakers who would take these popular programs away do not have consumers’ best interests at heart.  Lower-income Americans would be disproportionately harmed by expansion of the Durbin Amendment.  According to the Progressive Policy Institute, “there is substantial evidence that caps placed on credit card transactions reduces rewards offered to consumers while increasing the cost of holding a card, ensuring consumers across income levels are left worse off.”

The Credit Card Competition Act of 2023 would increase government interference in a competitive market and harm consumers by taking away credit card rewards.  Members of Congress should learn from previous mistakes and oppose such an expansion of the Durbin Amendment to credit cards.