When the Feds Swipe Swiping Power


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by Jack Cashill
Published in ingramsonline.com - July 2010

With yet another venture into the world of “badly needed reforms”—this time involving the financial sector—Congress shows once again that it’s not really about policy at all. This one is all about power.

By the time you read this article, President Obama may well have signed over to the Federal Reserve a newly minted power, one that even the most power-hungry of the conspirators on Jekyll Island in 1910 would never have thought to grab.

After a full century now of regulatory sprawl, the Fed will finally have become masters of the swipe.

A “swipe” or “interchange” fee is what credit- and debit-card issuers charge a merchant to pass a card through a processor, usually 1 to 3 percent of a given transaction. Until a few weeks ago, Adam Smith’s invisible hand set the fee at no cost to the taxpayer.

Then, in what CNN blithely calls a “surprise addition” to the Pandora’s box known as congressional financial reform, Sen. Dick Durbin of Illinois decided that the very visible hands of Fed employees—probably lots of visible new hands, paid for by you and me—could do a “fairer” job.

Local bankers and credit unions honchos are just about ready to storm the ramparts over this mindless usurpation, and it is hard to blame them.

“This amendment was proposed by large merchants for their exclusive benefit,” says Rob Givens, president/CEO of Mazuma Credit Union. “They hope to avoid paying their fair share of costs associated with the global payment network from which they benefit greatly and, instead, push those costs onto consumers.”

For some reason, Durbin decided to diddle only with debit cards. We don’t know why the focus on debit cards and not credit cards. Hell, we don’t know why the amendment was slapped on in the first place, as there was no hearing, no debate, no independent analysis, no nothing in a government that we were promised would be “the most open and transparent in history.”

Whither Consumer Outrage?

Congress can get away with this kind of mischief because consumers, alas, have been trained to think of card issuers much the way they think of shoe bombers or BP execs.

Card issuers have never gotten much in the way of respect. By way of background, in the late 1940s a fellow named John Biggins of the Flatbush National Bank got it into his head that if customers were given a bank card, and that card allowed them to charge items at various stores, the bank would be able to build loyalty among the customers and merchants alike.

Biggins called the card “Charg-It,” and, without fanfare, introduced the first universal “credit card.” True, the “universe” extended only to stores within a two-block radius of the bank, and the merchants were bitching from the get-go, but it was a start.

Early experiments with credit cards were about as successful as those that promised to plug the hole in the Gulf back in week one. The technology was primitive. The accounting was messy. And fraud was nearly as rampant as the griping among the customers, and the merchants.

At a BankAmericard convention, a licensee named Dee Hock rallied his colleagues to clean up the mess. He also made a branding suggestion that stuck: replace the ungainly “BankAmericard” with the sleek and sophisticated “Visa,” the card that puts you “everywhere you want to be.”

Although Hock understood that profit was what kept a bank’s doors open, profit was not what drove him. A true visionary, he was intrigued by the idea of electronic money. He saw it as a way to liberate the ordinary Joe from the physical restraints that cash imposed: the need to extract it from suspicious bankers, to have it handy at all times, to carry large sums when away from home in case of emergency.

Transparency, You Say?

Oddly, the Durbin amendment could undo the freedom Hock wrought. For no clear reason, it throws still another bone to the merchants by letting them set the minimums and maximums that consumers can put on their cards.

Under normal circumstances, I have no gripe with this rider at all. Merchants should have this freedom and a thousand others. It is just that Durbin added this amendment—like all the other claptrap in the reform package—under the guise of helping the consumer.

It doesn’t. A guy who walks in to a 7–11 to purchase a liter of Dr. Pepper and a pack of Marlboro Lights—presuming Congress doesn’t add amendments to outlaw either or both—will not know whether the store will take his card. So now he had better start carrying cash again.

True Motivations

What Dee Hock and other pioneers failed to envision was that their innovation would spark an anti-plastic revival. Soft-core Marxists have led this revival with all the charm and detachment of Puritan divines preaching infant damnation.

What the zealots failed to envision is that one day, the major merchants would be lighting their torches.

Somehow, these merchants have convinced themselves that banks and credit unions should issue cards, program computers, send statements, staff call centers, handle disputes, and hassle the deadbeats out there as some kind of community service, pro-bono.

To get their way, merchant associations have spent enough money lobbying Congress to pay down the debt of Greece, Portugal, and maybe even California. Bank and credit union associations will have to pay even more to undo it, not to mention the added cost of dealing with the new regulations.

All of this expense, of course, will be passed to the consumers, the dumber of whom actually believe that because of good Sen. Durbin, five-dollar foot-longs will henceforth only cost $4.95.

Consumer folly is understandable. Public schooling and network news have conspired to keep nearly half of all our citizens in a semi-permanent state of buyer’s remorse.

Harder to understand is why the merchants have encouraged this congressional power grab. Don’t they know that a government big enough to rule 3 percent too much for a swipe is big enough to rule $5 too much for a foot-long?

And is that foot-long really a foot long?

Maybe, if there is still time for another amendment to this power grab, the Fed can check on that, too.

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