For my money (no serious pun intended, as you’ll see), today’s big news is yesterday’s District Court decision by Richard J. Leon to slap down the Federal Reserve’s violation of Congress’ intent in implementing the order in Dodd-Frank to reduce the fees banks can charge for the use of debit cards. This sounds arcane, I know, and it is; but that doesn’t mean it’s trivial.
Now, if you’re not on drugs or preternaturally stupid, you will have already asked yourself why the Fed is in charge of this aspect of bank regulation as opposed to, say, the Comptroller of the Currency in the Treasury Department. Well you should ask, but that’s truly too arcane a history to tell here. So leave that aside for now, or else go read my TAI e-book Broken: American Political Dysfunction and What To Do About It for some basic background on the actual relationship between the Fed and the banks.
Focus instead on the key facts. The Fed initially wanted to set the fee at somewhere between 7 and 12 cents, but the banking lobby weighed in and, before you could say “swindle me timbers” the bank-friendly Fed allowed the rate to be set at 21 cents. This was lower than the average fee before the crisis and the passage of Dodd-Frank, but the reasons advanced for moving the fee to roughly double the originally proposed number were transparently preposterous. So a coalition of retailing associations then sued the Fed, and yesterday it finally won its case.
The banks have urged the Fed to appeal; so this is not over. In any case, the 21-cent fee will remain until new rules can be written, which, given the banking lobbyists’ clout and the Fed’s natural interests, could take years. Note recent press accounts of how Dodd-Frank’s CEO salary disclosure rule remains unwritten after nearly three years (Jerry Markon and Dina ElBoghdady, “Pay Rule Unwritten Amid Corporate Push”, Washington Post, July 7, 2013).
What this episode clearly shows is that only outsized actors in the economy, like the National Retail Federation and its well-heeled allies, can stand up to the banks and their friends in the Fed in Federal court. Gigantism rules (another theme whose implications are analyzed in passing in Broken). Ordinary citizens are completely at the mercy of such forces; not even Congress itself can play at an equal level in this contest. And some political scientists wonder why so many Americans are alienated from their own supposed democracy….
Not that the ordinary citizen is entirely deprived of entertainment value in all this. After the Court ruled, the New York Times wrote as follows:
The banks say the retailers have pushed for the lower fees not to benefit customers, but to pad their own bottom lines. “It was—and still is—all about trying to help retailers increase profit margins while providing no real benefit to consumers,” said Frank Keating, president of the American Bankers Association.
I suppose it really does take one to know one, but for a bankers’ shill to accuse retailers of wanting to pad their bottom line at consumer expense has got to rank as world-class mega-chutzpah. We have reached a point where a remark can be both outrageous and hilarious at the same time. Yet the average American citizen is neither outraged nor humored because the entire subject is much too arcane to bother trying to understand it; that’s rational ignorance, and the logic of collective action, too, hard at work.
Boy, what a job they do, huh?