Not One Cent?
This week the Federal Reserve released its controversial final rules governing debit card interchange fees. The rules, or price controls, cover 93 pages in the Federal Register, but fail to mention a single economic impact. A major regulation of more than $1.4 trillion in debit card purchases and an armada of economists at the Fed couldn’t determine cost or employment impacts?
Where’s Ron Paul when you need him?
To give the Federal Reserve some credit, they did mention that costs could exist and the rule could burden financial institutions. However, the Federal Reserve lamented, “[T]he Board cannot, at this time, determine whether the benefits to consumers exceed the possible costs to financial institutions … and the Board cannot predict the market response to the final rule.”
They could have perused President Obama’s latest Executive Order (13579) urging independent regulatory agencies to consider “costs and benefits (both quantitative and qualitative)” and “[promote] economic growth, innovation, competitiveness, and job creation.”
They didn’t. There is no mention of the effects of the rule on job creation, and no details on how the market will respond to overt price controls for $1.4 trillion in debit card transactions. Fortunately, there are a few details buried in the rules that evaluate the burden.
The second rule conducted a routine analysis under the Paperwork Reduction Act (PRA) and estimated the information collection time at 73,032 annual hours. What does this mean in terms of cost? The Fed didn’t say but some of its past Dodd-Frank rulemakings are illustrative.
On several occasions the Fed pegged an hour of Dodd-Frank compliance time at $42.95, an exact figure for a team of economists. This is drastically lower than SEC’s estimate of $400 an hour for compliance but the Fed’s figure is closer to the Bureau of Labor Statistics mean hourly wage for “compliance officers.”
Taking the Fed figure, $42.95, and the estimated paperwork burden, 73,032, yields an annual burden of more than $3.1 million. This is the amount for simply filling out forms, not the aggregate economic burden, which the Fed couldn’t manage to estimate.
The Fed’s MIA cost estimate appears to be the standard approach for agencies implementing the most comprehensive regulatory overhaul in modern history. Agencies have already issued more than 150 major regulations under Dodd-Frank, but less than one-third contain quantified cost estimates.
Bureaucrats may gain some marginal benefit by refusing to conduct these analyses but it is businesses and consumers that bear all the costs when the rule hits with full force. More than any agency, the Fed should understand that every one of its decisions has massive implications for “consumers … financial institutions … [and] the market.”
