Thursday, March 31, 2011

Dodd-Frank Bad for Consumers

One of the consequences of Congress passing the Dodd-Frank "reform" bill is that consumers are now finding themselves losing out as banks cut debit card rewards programs, increase consumer fees, can no longer serve young adults independently, and now are forced to tell people that their credit and debit cards can be declined by merchants who don't want to accept them for small purchases. Dodd-Frank was positioned as a way to curb so-called "abuse" by banks, but in reality it limits the free market and hurts consumers. 

Congress made mistakes, and they need to act to repeal these parts of Dodd-Frank. Here's why:
  • With the interchange rate caps, banks are moving to eliminate rewards programs and incentives on debit cards, and to a lesser extend credit cards. Consumers in the past could get rewards points or cash back when using their debit cards. Now, many debit cards are eliminating the rewards offerings and some credit cards are reducing their programs as well. The result of this is that consumers lose out. The way that the free-market system worked is that debit and credit card processing firms set rates for debit card acceptance, and merchants who decided they wanted to accept the cards would find the processor that suited their needs and charged a price they were willing to pay. Some merchants decided they didn't want to pay, and thus decided to remain cash-free despite data that shows businesses that accept more forms of payment are actually more profitable.
  • Since Dodd-Frank will curb the amount that banks can charge merchants for credit and debit card transactions, banks are now considering adding more fees to consumers to make up for the lost revenue. Imagine if you had to pay 50 cents every time you used a debit or credit card to your bank? That could add up to hundreds or thousands of dollars in a year. Some consumers would be forced to carry cash, increasing the opportunity for criminals to take advantage of them and losing out on consumer protections.
  • Dodd-Frank limits access to credit for people age 18-21. As a result, these adults, who are of sufficient age to serve the country in combat in a place like Afghanistan, are unable to obtain credit cards or loans on their own. This reduces their ability to build a strong credit profile while in college or when starting out on their own. Additionally, it places an undue burden on young adults. Booking airline tickets, checking into a hotel, or renting a car is much more difficult or inconvenient when you don't have a credit card, for example. 
  • One of the worst parts of Dodd-Frank is that it overrode the "no minimum" policies of Visa, MasterCard, and American Express. In the past, consumers knew their valid credit and debit cards had to be accepted by merchants whether it was a $0.49, $4.90, or $490 purchase. Now, merchants can set a minimum of as high as $10 to use a credit or debit card. This limits consumer choice in payment, and can force people to carry more cash making themselves a target for criminals.
All of the above make it more difficult for consumers to shop, and as a result consumers end up spending less leading to a negative impact on the economy. There are some ways that the American people can fight back against these portions of Dodd-Frank that hurt consumers:
  • Switch to banks that continue to provide rewards programs and do not charge absurd fees. Unfortunately, many banks in order to remain competitive are going to "follow the leader," giving consumers fewer options. 
  • Contact members of Congress and encourage them to repeal parts of Dodd-Frank that hurt consumers. Send letters, e-mails, tweets, and if you see your Congressperson talk to them.
  • Boycot any merchant that imposes a minimum sale. Additionally, if you encounter a minimum sale amount that was not disclosed to you, such as if a bar tells you you have to buy more drinks to close a tab, refuse to do it. Do not sign the receipt, and if you are charged more than what you actually bought then report this is fraud to your credit or debit card issuer. If the place holds onto your credit or debit card, report it as stolen so your bank can close it and issue a new one.
Dodd-Frank is a prime example of how government regulation and interference run amuck hurts the American people. We can only hope that parts of it are repealed. 


  1. Is the writer of this blog working for Bank of America or something?

    Dodd-Frank was needed reform to stop big bank abuses. People age 18-21 went bankrupt because the banks abused them. Businesses that employed people went under because of big banks.

    Also you can't report a credit card stolen if it isn't stolen, that is fraud.

  2. The argument that someone isn't responsible enough to be treated like an adult when it comes to finance, yet they're responsible enough to be given an M4, grenades, and be sent to fight in Iraq is ridiculous.

    None of our staff work for Bank of America. Also, it is fraudulent for a merchant to charge more than the advertised price for something. If they sell an item for $3.00, tax is 6%, and that's all you buy then a charge of $3.18 is legitimate. A charge of $10 is $6.82 worth of fraud.