published Sunday, July 17th, 2011

Debit fees and ‘price controls’

History shows that “price controls” usually don’t “control prices.” They just shuffle them around.

After it was announced that federal regulators would sharply limit the fee that banks can charge merchants for processing purchases made with debit cards, banks were understandably alarmed. The “price control” — 12 cents per transaction — would naturally force them to raise prices on other customers to make up the lost revenue.

In response to the banks’ complaints, the regulators later voted to put a higher cap on debit card transaction fees: 21 cents.

But that limit is also inappropriate. Even with the slightly higher debit card fee allowed, banks will still lose lots of revenue that they will have to make up elsewhere. So while government may have reduced fees charged to debit card users, it will raise prices paid by other bank customers.

At any rate, it is not government’s place in a free market to set prices for goods and services. That’s the job of consumers and the providers of those goods and services, interacting willingly for mutual benefit.

Intrusion in the market creates more problems than it solves.

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