Many of us know what a “seven-year itch” is. Between the famous Marilyn Monroe movie of the 1950s and the legendary Roseanne Cash song of the 1980s, it is a fairly well-understood turn of phrase.

Congress finally got around this past week to scratching one the most economically painful and fairly literal “seven-year itches” by starting the process to roll back the Dodd-Frank Act, which will turn seven this July.

The Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act—currently before the House Financial Services Committee—has many bright ideas and could serve as a great replacement for the burdensome Dodd-Frank bill of the Obama years. However, in the midst of this happy occasion, the American consumer needs to pay close attention, because Congress may in the end do something stupid.

A behind-the-scenes effort is underway let a Dodd-Frank provision commonly referred to as the “Durbin amendment” remain in the law. If you have a checking account, you should not let Congress keep this law on the books. Chairman Jeb Hensarling, R-Texas, took a strong stand in calling for repeal of the Durbin amendment as part of the CHOICE Act, and the committee should follow his lead by keeping that repeal in the final mark-up.

The Durbin amendment affects literally anyone with a checking account and a debit card. It requires the Federal Reserve to impose artificial government price controls to cap what banks charge to retailers for what are referred to as “interchange fees,” which banks use to pay for the security they provide for customers’ accounts. The cap is set far lower than it would be in a free market, creating a host of unintended consequences.

Before the government interference, banks and credit unions would use these fees to cover more than just security. They would use the revenues to offer perks to their customers, like free checking or point rewards system similar to what we see with traditional credit cards. Studies have shown these perks are worth millions in value to customers. But thanks to the Durbin amendment, banks have been forced to scale back their perks dramatically. The end result has hurt consumers, particularly those—like lower-income families or younger customers—who rely heavily on their checking accounts to conduct financial transactions.

While checking-account customers lost out, retailers (especially big-box retailers) made out like bandits. In 2010, the major retailers’ lobby sold Congress on limiting these transaction fees, promising they would pass along the savings to their customers. As of today, there is no evidence that has ever happened. In fact, an analysis of Federal Reserve data shows retailers have made off with more than $42 billion in foregone interchange fees over the last seven years. Shoppers have seen virtually no decrease in prices, even as they watched as many of their banking benefits disappear.

As the Financial Services Committee wraps up its hearings on the CHOICE Act, it’s important for the American people not to sit by idly. The Durbin amendment was sold in 2010 as protection for the American people, but the data prove the only protection it offers is to the major retailers’ profit margins. The House Financial Services Committee should strive to repeal the Durbin amendment, as should the full House when it hits the floor.


Image by alice-photo