Dodd-Frank Turned Six, But Consumers Still Aren't Celebrating

Dodd-Frank Turned Six, but Consumers Still Aren’t Celebrating

One of the signature achievements of President Barack Obama’s time in office just turned six.

In praising the Dodd-Frank financial regulation law, Sen. Elizabeth Warren joined Obama on his weekly White House address, and praised the new rules and agencies established under Dodd-Frank have created a more transparent financial system by “making sure that if a bank screws up, you have someone to call so you don’t get stuck with the bill.”

In actuality, whether a bank screws up or not, you’re getting stuck with the bill.

Photo Credit: Getty Images

To honor the anniversary, the American Action Forum highlighted the true cost of Dodd-Frank’s regulations. The rules themselves have cost $112 per individual and $310 per household. This is a direct result of regulations coming from the newly created agencies and their expanded powers the law has created.

The majority of these costs stem from compliance alone. Using these same data, American Action Forum also estimates the regulations have caused consumers and businesses to spend roughly 74 million hours on paperwork at a total economic impact of $36 billion.

With this price tag, it’s hard to imagine how Dodd-Frank and the Consumer Financial Protection Bureau (one of the law’s newly created bureaucracies) have provided “over $11 billion in relief for more than 27 million hardworking Americans,” as Treasury Secretary Jack Lew has asserted. In reality, since Dodd-Frank was signed into law in 2010, regulations have led to a 14.5 percent decrease in revolving credit.

It’s consumers who are bearing this burden. Case and point: the Durbin amendment.

Named after Illinois Sen. Richard Durbin, it was added at the last minute to the Dodd-Frank legislation as a form of price control. Under the amendment, the Federal Reserve has capped the amount which banks with over $10 billion in assets can charge merchants and retailers for debit card purchases, also known as “swipe fees.” These fees are currently capped at roughly 21 – 23 cents per-charge.

Sounds good?

It’s actually not, and here’s why: prior to the Durbin amendment, merchants would charge around 1 percent per-transaction. If, for example, a retailer sold a smartphone for $300, the retailer would pay a $3 fee to the bank as a small insurance policy to counteract the risk of fraud or overdrafts from the consumer. As noted by the Competitive Enterprise Institute, the average swipe fee was 44 cents per transaction.

It was believed that by cutting the fee in half and capping it consumers would see a reduction in the price of the smartphone at the checkout counter.

Instead, a study by the Richmond Federal Reserve has shown that most big-box retailers like Target and Walmart have failed to pass these savings on to the consumer by lowering the cost of items.

But that’s not all.

Consumers are paying more at the bank counter as well through increased banking fees. According the Boston Federal Reserve, the Durbin Amendment has cost large banks nearly “$14 billion a year or more than 5 percent of core total noninterest income.” In an effort to make up for the lost revenue and riskier retail transactions, almost all banks have increased ATM and overdraft fees, enacted stricter limits on debit card transactions, and ended free checking.

The decreased availability of free checking accounts and accounts with no minimum balance have hurt America’s most vulnerable consumers. Americans living in poverty or near poverty, those who can least afford to lose low-cost banking services, are the ones disproportionately hurt by these policy changes.

As the presidential candidates roll out their visions for the future of the country, the candidates have starkly different views when it comes to our nation’s banking laws, specifically when it comes to Dodd-Frank. Pandering to the increasingly progressive wing of her party, Hillary Clinton predictably seeks to enhance this sweeping financial law; meanwhile Donald Trump says that he would "dismantle" much of it.

Even though Sen. Chris Dodd and Representative Barney Frank have since left Congress, the law that bears their names is still hurting consumers and taxpayers, whether they recognize it or not. If President Obama, Senator Warren and Secretary Lew want to help consumers save at the checkout and bank counter, they should work with members of Congress to repeal the Durbin amendment and reverse many other harmful parts of Dodd-Frank.

James Setterlund is a policy analyst at Americans for Prosperity.

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