You Can’t Fix Stupid

Take a look at this chart…

I’ve shown it to you a number of times in the past. It’s a dataset from the Federal Reserve Bank of St. Louis called “Consumer Loans: Credit Cards and Other Revolving Plans, All Commercial Banks.”

It’s largely credit card debt. 

And as you can see, it’s soaring to new all-time highs. 

It doesn’t take a PhD to understand why this would be the case. Soaring prices from current inflation has put a massive squeeze on a majority of consumers. The rise in prices has outpaced the rise in earnings. That means real earnings have been negative (and falling) for the past year and a half. Here’s the most recent in a long string of reports from the BLS…

Add it all up and the result is this situation has forced more and more people into debt. (Paying their banks somewhere around 19% on balances annually…)

The Government to the Rescue

This is the part where I tell you that the only thing that governments have ever been able to deliver regularly, reliably, and without fail… are unintended consequences. 

Here comes a doozy right at a time when people are relying on plastic more and more to cover their monthly bills.

Senators Dick Durbin and Roger Marshall have introduced legislation called the Credit Card Competition Act of 2022. 

The idea behind the legislation is to require large banks that issue credit cards to offer at least one alternate payment processing network that isn’t affiliated with Visa or Mastercard. The justification is that doing so would create more competition in the industry, thereby driving costs for merchants and consumers lower.

Real Life Proof of Bad Ideas

If you needed real life proof that legislating prices is a bad idea, here you go… 

Over 10 years ago, Durbin proposed (and got passed) an amendment to the Dodd-Frank modestly known as the Durbin Amendment. It was another attempt to save the consumer money.

The Durbin Amendment requires the Federal Reserve to set a cap on debit card transaction interchange fees and mandated routing requirements for all debit card payment networks.

Because when you pass legislation eating into a business’ revenue… they sit there and take it.

Of course not…

Banks responded to the loss in exchange fee revenue by raising other rates and fees, eliminating free checking and wiping away nearly all of the benefits and rewards they offered with their branded debit cards. Durbin’s “pro-consumer” legislation wound up costing consumers billions, the loss of perks and benefits and priced millions out of owning a bank account

Today, over 1,600 retailers are pushing for this legislation to pass. You can imagine their motivation…

“The last time we saw a letter like this, retailers were lobbying for the Durbin amendment windfall they did not pass on to consumers, despite testifying that they would,” said Jeff Tassey, board chairman of the Electronic Payments Coalition, which represents card issuers and networks.

The real losers would, in theory, be the card issuing banks… except they won’t be. They’ll simply cut rewards and cash back programs, start charging higher fees, and potentially leave consumers exposed to fraud through less-secure processing networks.

The only one in the cross hairs to pay for the loss in revenue will be the credit card-using consumer.

This legislation is sooooo pro-consumer that the Senators have been trying to package it as an amendment to the National Defense Authorization Act which would allow it to bypass scrutiny by the Senate Finance Committee.

You Really Can’t Fix Stupid

There is a saying known as Hanlon’s Razor that says “never attribute to malice that which is adequately explained by stupidity.”

I defy these Senators to show me a cost that was legislated onto a business that was not in some way passed back to the consumer.

I have a hard time believing Senator Durbin is this stupid. 

Times are bad enough, you don’t need the government lumbering in to fix things.

It makes you wonder whose side they’re really on…

Make the trend your friend,

Bob Byrne
Editor, Streetlight Daily