Economic Analysis: Durbin Amendment

As part of the Dodd- Frank financial regulatory overhaul passed in 2010, the Durbin Amendment was designed to "reduce costs for merchants that accept debit cards" (Sidel, R. December 8, 2011. PP. 1) by imposing a ceiling on the interchange fees which the banking service industry could charge their clients. As with most government intervention into economic activity, there is well intention to ameliorate perceived market failures, protect consumers, or more strongly regulate business. Yet, the Durbin Amendment demonstrates how externalities arise from beneficent government activity. In this case many small to medium size merchants, and consequently their customers are experiencing higher costs not lower.

Summary

The Durbin Amendment's ostensible goal is to protect merchants from the confiscatory pricing on debit card interchange fees charged by the banking industry. The legislation empowered the Federal Reserve to set interchange prices, "capping merchant customer debit card fees at...
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