published Friday, September 2nd, 2011

Congress shifts, but doesn't eliminate, fees

Consumers who enjoy the free use of debit cards from their banks may soon have to pay for that service — and they have Congress to “thank” for that.

The Dodd-Frank Act did a favor to merchants by slashing in half the amount that banks are permitted to charge merchants for electronic transactions.

That was wrong in principle because price-fixing is not an appropriate or constitutional function of the federal government.

But it was also wrong from a practical, financial point of view. Why? Because banks are having to find ways to make up the revenue that they will lose from being forced to reduce charges for electronic transactions. One way they are trying to make up the shortfall is by charging monthly fees when consumers use debit cards.

Some banks in our area are looking at fees of $3 to $6.

The problem is that Congress did not think before it acted. Lawmakers assumed — as they often do — that they could intrude in and micromanage the free market without creating a series of economic consequences. But of course, there are always consequences when the federal government decides to give preference to one sector of the economy over another. The disfavored sector has to try to fix the problems created by government intervention, and that affects us all.

In this case, that means millions of bank customers may have to start paying monthly fees to use their debit cards.

While merchants may benefit from having to pay lower transaction costs, consumers will suffer when the new regulation shifts costs onto them.

How many times must this sort of federal meddling create problems before Washington finally realizes that distorting the market is simply a bad idea?

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