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Who Really Wins When Government Controls Prices?

"We have absolutely lowered prices…[but] what I can't do is draw that direct correlation to Durbin."

Those are the words Dwaine Kimmet, Home Depot's treasurer and vice president of credit, used to describe the company's decision to lower prices on 3,000 products in a recent American Banker article entitled, "Home Depot Lowers Prices After Debit Swipe Fee Victory." 

Despite the fact that these price cuts affect just 1.03% of the 290,000 items Home Depot offers to customers, the company continues to push the narrative that such extremely limited savings are "evidence" that government price controls work and consumers have benefitted. 

Let's take a look at the facts.

During an earnings call on Feb. 22 of last year, Home Depot told shareholders that interchange price controls would add "$35 million a year" to the company's bottom line.  Why should consumers now believe the company has chosen not to keep these newfound gains for themselves?  It was – and still is – all about retailers increasing profit margins while providing no real benefit to consumers.  

In fact, when Home Depot executives recently spoke to shareholders, they attributed a reduction in expenses to "rapid-deployment centers," with no mention of gains from government price controls, which have clearly gone right to their bottom line.

Big-box retailers like Home Depot continue to rake in billions annually from the Durbin Amendment, while consumers don't see savings they've been promised at the register.  At the same time, consumers face higher costs for bank services, an entirely predictable result as institutions adjust to a 45% reduction in revenue they used to provide low cost accounts, fight fraud and maintain the payments system.   

After retailers received an annual $7 billion gift from Congress, shouldn't consumers be entitled to a larger discount than savings on just 1.03% of the products a company offers?  Don't be fooled by big retailers that continue to play fast and loose with the facts.  Price controls and market interference have damaged the market and consumers continue to pay the price. 

Kenneth Clayton is the executive vice president of legislative affairs and chief counsel at the American Bankers Association.


(1) Comment



Comments (1)
As usual, the big banks plug their own self-serving explanation of debit-card reform, an explanation that differs not only from what every merchant in America who accepts debit cards sees every day but from the economic reality of the marketplace, which dictates merchants compete on prices or risk going under. When savings come in, they will go out as lower prices. The Durbin Amendment is not a "price control," as the banks have misrepresented it; instead it frees and brings light to what had been a broken, dysfunctional, anticompetitive market that gouged merchants unfairly and raised prices for consumers.

The big bank spokesman in this piece neglected to note that Home Depot elaborated last year about its plans for savings from the Durbin Amendments reform of swipe fees, including discounting: "We have stated clearly that the savings would be deployed to the benefit of our customers. ... A reduction in the excessive debit fees would reduce our operating costs, and that would allow us to do any combination of the following to ensure that any reductions to the high debit fees get passed through to customers: lower prices; extend payment terms on our private label credit card; put more associates on the floor to improve customer service."
Posted by Merchants Payments Coalition | Wednesday, June 20 2012 at 2:09PM ET
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