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Commentary: Unintended consequences of finance reform

This article first appeared in the St. Louis Beacon, July 1, 2010 - I believe the Durbin Amendment that is part of the Financial Reform Bill will hurt community banks and credit unions without providing the intended relief from big banks and credit card companies. The stated purpose of this amendment is to protect consumers from debit and credit card interchange fees.

Sen. Richard Durbin, D-Ill., believes that the "prices charged to consumers" by their favorite retailer will be reduced if this amendment is passed. That will not happen. Many businesses have to maximize profits to pay their stockholders. They will get a well-deserved break but I doubt anyone will actually reduce prices.

Interchange fees are the fees paid by the retailer to the institutions that issue, finance and service the cards. Passing this legislation as it now stands will take away financial institutions' revenue. This revenue loss will hurt member-focused organizations the worst. At big banks, the loss will likely be passed on to the consumer.

I, on the other hand, am one of thousands of credit union presidents nationwide who will painfully toil over what to do if this amendment is passed. See, our business model is not-for-profit. We think well beyond the knee-jerk reaction of passing said costs on to our members (customers).

If the revenue we earn is reduced, we will have to choose among cutting operating expenses, eliminating programs, decreasing services, depleting product offerings and/or raising fees. It will hurt our members. Competition will be altered, and the consumer will be at even greater risk for the unmitigated fees from the for-profit banking sector.

So, to recap, if the Durbin Amendment is passed, retailers will receive savings that will not be passed on to the consumer. Banks (and maybe credit unions, too) will increase prices for services and products because they have to make up what they gave to the retailers. And consumers are left listing in the wind with less money and a floundering economy.

Legislators need to know that what they do in D.C. sometimes hurts consumers. As voters, we are ardent consumers. By most counts, we represent close to 70 percent of the overall economy. Durbin's amendment is a classic example of legislation whose unintended consequences will ultimately hurt the very people (consumers) it's designed to help. Credit unions, which work extremely hard to keep fees low for area consumers, will be hurt as well. 

Patrick K. Adams is president and chief executive of the St. Louis Community Credit Union

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