Unintended Consequences of "Consumer Protection"

Debit card transaction fees charged by debit card issuers to retailers would decline by about $12 billion under provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The law contains an amendment appended by Senator Richard Durbin, (D-IL) that sharply limits the fees debit card issuers can charge to retailers for use of those cards. Some have estimated losses of about $12 billion annually to card issuers, with the logical consequence that those institutions will raise fees and charges for other services to recoup the lost revenue.

The law sounds good, to some, as it promises lower transaction costs for retailers, who some believe might pass some of the savings along to consumers. Those of you who follow business to any extent will realize the logical unintended consequence, however. Debit card-issuing firms are not simply going to take a $12 billion hit to top-line revenue, but will look elsewhere to recoup those losses. And end to "free checking" and higher fees, plus new fees, will be the unintended consequence.

The rules will allow some legislators to posture about "doing something to help consumers and retailers." What also will happen is that consumers will find themselves paying additional costs elsewhere, wiping out the "savings." No rational executive running a debit card operation would do any less.

Assuming the losses can be recouped over time, one also has to expect job losses and less-generous working conditions and compensation. The $12 billion revenue hit will be immediate; the replacement revenues will take time to create. In the interim, costs will have to be attacked. So the other "unintended consequence" will be job losses.