Most Louisiana residents are unaware of a new federal law that will result in harm to local Louisiana community bank customers and will be a windfall for big-box merchants.
In 2010, Congress inserted into totally unrelated legislation an amendment that requires the Federal Reserve Board to fix the price of a service provided in the market. That’s right, the federal government is to fix prices.
When consumers swipe their debit cards there is a small fee charged. Consumers don’t see this as it is typically built into the price of the item purchased. The merchant selling the item pays the fee. In return, the merchant receives guaranteed payment, has no risk of fraud loss as with a check and gets a satisfied customer who quickly and efficiently receives approval and is on his way. Merchants also increase their business with this marvel of electronic networks. Every person in the transaction is benefited, including the local bank that issued the debit card.
The fees are not a significant profit center for community banks - debit cards have become popular, and local banks have responded. But the fees do help cover expenses, including helping to defray fraud losses and covering the cost of reissuance of cards when there is a data breach at a merchant or other entities that have customer information that could be used to create fraudulent debit cards.
What Louisiana community bankers find so objectionable, as will their customers when they realize what this will mean to them, is that members of Congress believe it is their job to fix the price of these transactions.
If Congress has the power to tell the Federal Reserve to fix prices, what will Congress do next? If we give this power to Washington, it will be hard to undo the damage this precedent sets. Maybe your business will be next.
Robert T. Taylor, chief executive officer
Louisiana Bankers Association