Tag: Durbin

  • Why Is the Government Paying High Interchange Fees?

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    Adam Levitin

    The American Banker (subscription required) reports that Senator Dick Durbin has "added an amendment to an appropriations bill that would require credit card payments accepted at government agencies to be given the lowest available market interchange rates, which typically can only be negotiated by large supermarket chains."

    The amount of money at stake is relatively small–perhaps $28 million/year. But it is rather astonishing that the US government doesn't already get rock-bottom interchange rates. If interchange is supposed to reflect the merchant's risk (an argument sometimes made), the US government should be getting the risk-free rate. It hasn't been. Frankly, I'm not sure why the government should settle for getting the best rates available to large supermarket chains-that's not a risk-free rate. If interchange is about risk-based pricing, surely supermarkets should pay a premium over the government?

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  • Usury Bill

    Posted by

    Adam Levitin

    This week Senator Richard Durbin (D-IL) introduced a federal usury bill, S.2387, the Protecting Consumers from Unreasonable Credit Rates Act. I haven’t found a copy of the bill yet, but according to Durbin’s website, the the bill:

    • Establishes a maximum interest rate of 36% on all consumer credit transactions, taking into account all interest, fees, defaults, and other finance charges.
    • Clarifies that this cap does not preempt any stricter state laws.
    • Applies civil penalties for violations including nullification of excess charges, fines, and prison.
    • Empowers attorneys general to take action for up to three years after a violation.

    There are four major points to make about this legislation. First, it would restore an important element of democratic political accountability to consumer protection in financial services. Second, it would significantly restore states ability to protect their own citizens. Third, it offers a solution to the problems of financial products being structured so as to avoid APR disclosures and to catch consumers with hidden fees. And fourth, it represents a very important first step in a legislative process of rethinking the model of credit industry regulation.

    [Hat tip to Dan Ray for the link to the text.]

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