It is time to repeal regulations that harm the Unbanked
Financial inequality has become a hot topic in the media recently. It is high time that this important topic began to get more mainstream exposure. Not only are we seeing the perpetually wealthy become more and more financially prosperous, but we are also seeing more United States citizens and households becoming drastically under and un-served by the traditional financial institutions. According to data from an FDIC report published back in 2011, over 10 million households in this country were officially unbanked. This marked a one million American increase since 2009. Add to that the fact that another 20 percent of households in this country being classified as underbanked and it is easy to see that we have a real problem on our hands. Underbanked households are those that occasionally have to rely on alternative financial services, like payday lenders and cash checking facilities, in order to make ends meet.
Hard numbers are not exactly easy to come by, but the number of unbanked households have almost certainly increased since this data was originally posted. All of this has happened despite the fact that the economy has stabilized considerably and the economy has slowly continued to recover. So why is it that so many hard working American families continue to struggle financially? What has caused Americans to lose access to mainstream financial services in droves over the past 10 years or so?
The ongoing effects of the financial crisis certainly attributes to some of these financial woes. But there is also the steady consolidation going on in the banking industry that can be brought to task too. The majority of the blame, however, seems to belong to a provision of the Dodd-Frank law that many people are not aware of. This provision, called the “Durbin Amendment” laid down some hard and fast price controls on interchange fees (a part of the merchant’s discount fee that is paid for by retailers when you use a credit card at their store) that is charged for debit cards from large banks that have over $10 in financial assets.
The implementation of this mandate was supposed to set the price controls at rates that are “reasonable and proportional.” That has not always been the case, however. Appeals have been made that called the language of the amendment “confusing and its structure convoluted.” Another rule making by the Federal Reserve took effect in October of 2011. This changed the averaged interchange fee to fall from 44 cents per debit card transaction to about 24 cents, with average transaction amounts being for about $40.
How has the Durbin Amendment effected Americans? Over two years after it was implemented, studies have found that consumers are paying out more and getting less because of the Durbin Amendment. Low income consumers, it seems, have suffered more than others. To make matters worse, big box stores have seen billions of dollars in savings because of the lower interchange fees, but there is no hard evidence that any of these retailers have passed that savings on to their customers. And it appears that small, locally owned businesses have not benefited at all from this amendment.
Any time laws and regulations are pushed through, you can count on amendments being tacked on that may wind up causing more harm than good. The Durbin Amendment seems to be just such a piece of legal wrangling. If the government is really interested in helping lower income citizens, it is high time for these types of regulations to get repealed once and for all.