No, Senator Dick Durbin, D.-Il., and the U.S. Senate have not announced or passed a new bill or law or even discussed raising taxes. They already taxed the public by trying to protect the consumer through Dodd Frank. The cost of government protection is typically a tax on its citizens, the ones they claim to protect.
The Durbin Amendment to Dodd Frank has hurt small business owners. The bill was supposed to protect the consumer but did nothing for the consumer and only helped big box retailers initially who lobbied Durbin for this bill. This effort was under the guise of helping consumers but only helped Walmart, Target, Costco etc. Small businesses have been hurt, but why?
So far we can point to a few separate events that we at the Small Business Authority can link to the Durbin Amendment.
- When Durbin came into play in October 2012, merchants that have interchange based pricing (primarily large merchants) got a price break in reduced debit fee expense. Small merchants typically do not get the benefit of this pricing. Banks tried to raise debit card fees to clients but the campaign by Senator Durbin to protest Bank of Americas publicized raised fee caused Bank of America to back off. In the end, the Durbin Amendment has reduced card issuing bank profits and consequently a markedly reduced amount of lending to small business due to pressures to shrink the balance sheet and raise capital.
- Over the weekend, Wells Fargo announced a $7 fee for checking account clients as the concept of free checking will become a thing of the past as banks look for ways to replace this revenue and profits due to government interference. Ironically, if the client is large enough they can insist on free checking even at Wells Fargo. The small consumer and small business owner gets hurt again as the government tries to protect it. With friends like that who needs enemies?
- Lastly, Visa will be introducing a new fee in April and Master Card is looking at a new fee to be instituted over the summer. The payment processing platform providers announced these new fees to banks recently. The fees would circumvent the interchange fee caps set by the Durbin Amendment in the financial reform act of 2010. The new fee charges entities per location which hurts gas stations and restaurant and other multi-location enterprises. Banks will find ways to trickle these new fees down to merchants.
In the end, small business owners without the lobbying power will have higher processing costs. The Durbin Amendment has not trickled down to the consumer as of yet.
The Durbin Amendment’s current unintended consequences are:
- A new Visa and Master Card Fee affecting Small Business Owners who will raise their prices to the consumer if they want to protect their margins.
- Free checking is at risk to protect Bank profits and margins which will most likely hurt the low income consumer and small business with small bank balances.
Durbin appears to have inadvertently taxed both small business and the consumer. Can we turn the clock back?
This blog originally appeared on Forbes.com.