The Senator, the Lobbyist, and the Debit Card Interchange Rule

DISCLAIMER: As always, this brief policy article represents my own research and opinions and does not purport to represent the opinions of nor was it funded by any third party organization.

"The only way that has ever been discovered to have a lot of people cooperate together voluntarily is through the free market. And that's why it's so essential to preserving individual freedom."  --Milton Friedman

"In general, if any branch of trade, or any division of labour, be advantageous to the public, the freer and more general the competition, it will always be the more so."  --Adam Smith


Q: What do you get when a United States Senator and a seasoned Washington Lobbyist meet at the Drive-Thru Window of Opportunity?

A: The Durbin Amendment, better known as the Debit Card Interchange Rule

As I had undertaken my research these past several weeks into the unconstitutionally confiscatory nature of the proposed rule, I began to more thoroughly question the impetus for the very inclusion of such an amendment to a financial reform measure largely spawned by the challenges posed by the mortgage market. What did debit card interchange fees have to do with protecting consumers from a few unscrupulous and irresponsible former mortgage lenders? And what motivated Illinois Senator Dick Durbin to bring his amendment to the Senate Floor be included in the Restoring American Financial Stability Act of 2010 when he did?


Initially it would appear that Senator Durbin, as a member of the Senate Leadership, simply recognized that the Congressional mood for financial reform legislation could easily absorb another "consumer protection" measure. Yet I couldn't help but question who/what had motivated this particular measure, since the public had not been clamoring for it and no definitive study of the debit interchange topic had concluded that it harmed either the consumer public or the sophisticated commercial enterprises that freely contracted to provide or benefit from debit card interchange services.

When a diverse array well-respected public responsibility groups, including the NAACP, the Hispanic Chamber of Commerce, the Black Chamber of Commerce, and the Conference of State Bank Supervisors, join together to urge Congress to revisit the well-funded and erroneous legislation, consumers immediately recognize that something is amiss in Washington.

The debit card interchange rule doesn't actually have anything to do with legitimate consumer protection. Financial services professionals have always supported the common-sense market-driven consumer protection measures and licensing requirements that protect the public from the few unscrupulous charlatans who engage in predatory practices. Since financial services professionals are simply honest, hard-working consumers with families themselves, they clearly recognize that protecting the integrity and public trust within the financial services industry has always provided a win-win outcome. The majority of potential misdeeds are squelched before any damage can be wrought due to internal control policies, ethics training, licensing requirements, and the self-policing nature of the industry.

The debit card interchange rule was a pro-business creation born upon a conference room table within Suite 1100 at 325 7th Street N.W. in Washington, D.C., home of the National Retail Federation, the National Restaurant Association, the National Council of Chain Restaurants, and the Merchant Payments Coalition. These trade associations represent corporate retail and restaurant conglomerates that have long sought to unilaterally renegotiate the debit card interchange fees to which they had contractually agreed. Apparently dissatisfied with their own business leaders' efforts employing commercial negotiation in the free market, these organizations turned to trade association lobbyists to continue the effort using Federal Government confiscatory action.

Enter Rob Green, Executive Director of the National Council of Chain Restaurants (NCCR), who succeeded Jack Whipple last month to manage all NCCR government relations advocacy. Preceding his move within the confines of Suite 1100, Green was Vice President, Government and Political Affairs at the National Retail Federation (NRF), where he served as a senior lobbyist for the world’s largest retail trade association during the influential time leading up to Senator Durbin's introduction of the debit card interchange "consumer protection" rule.

Lobbyist Green immediately recognized that a perfect storm would briefly open the display window of opportunity for the NRF during which time he would propose a government price-fixing rule that would amount to a  72.7% reduction in interchange revenue for the financial services industry that had built the networks and provided the fraud reduction technology that facilitated cost-savings for consumers and businesses. Imagine if the NRF had found themselves on the receiving end of proposed legislation that would have mandated reducing their retail prices by 72.7% to those very same consumers? Would the NRF have simply "embraced" that legislation? We think not.

I am certainly not accusing Senator Durbin or Rob Green of any violations of federal law, but FEC records detail that more than just burgers and fries were in the bag when the honorable Senator and his colleagues met the former-NRF lobbyist and current NCCR Executive Director at the drive-thru window of opportunity. You yourself may follow the money transfers disclosed in publicly-available documents. While some of the world's largest big box retailers represented by Green poured money into organizations associated with Durbin and his former aides lobbying for the rule, the good Senator wove the rule into the larger legislative framework intended to curb the egregious mortgage-related abuses perpetrated by the few.

From a corporate executive viewpoint framed to maximize shareholder returns, one can certainly understand why the investment into lobbying appeared (and continues) to be a prudent investment. But given the certain unfavorable financial impact that the debit card interchange rule would impose upon American families struggling to emerge from the recent financial downturn, I would urge Senator Durbin to assume a new ethical stance and join his colleague Representative Barney Frank to support further objective study of the issue in the light of day and allow the results of such studies to be fully disclosed to non-lobbyists to allow for a proper analysis of the real impact upon the American family's budget.


For leading this effort on behalf of our American families, I applaud the consistent and untiring effort being put forth by Frank Keating (ABA) and Fred Becker (NAFCU) nationally, as well as John Llewellyn (Michigan Bankers Association) and Jordan Kingdon (Michigan Credit Union League) to educate the public about the very real household economic effect that implementation of this dubious rule would wreak. Ultimately, our collective efforts to preserve consumer choice and to protect business from government unconstitutional price-fixing will prevail in the bright light of day.

REMAINING A STUDENT OF THE GAME

"Those who teach by their doctrine must teach by their life, or else they pull down with one hand what they build up with the other."  --Matthew Henry

“Whoever undertakes to set himself up as a judge of Truth and Knowledge is shipwrecked by the laughter of the gods.” --Albert Einstein

I experienced pure joy recently during what I had believed would be a relatively straightforward meeting. I came away knowing that I had become the Student, and that the student had become the Teacher, though at the time I don't believe that either one of us recognized the juxtaposition. As I drove home that evening, I found myself smiling as I became consciously aware of the lived lessons that the young manager had imparted upon me.

A client had invited me to visit one of its sites to counsel and advise one of its newer general managers (I'll refer to him as "Ron") regarding a sensitive human resource matter that he would soon have to address with one of his employees. The client operates a number of locations of a casual theme dining restaurant under a franchise agreement, and given my employment in the industry for a number of years before entering law school, I naturally gravitate to and identify with some of the unique staffing and human resource management challenges of the larger marketplace. I had not met Ron previously, and we were scheduled to sit down at 8:45 p.m.

Having arrived a few minutes early and not wishing to disturb Ron or disrupt his team as it concluded its weekday dinner rush, I took a seat in the lounge area and ordered a glass of iced tea to catch up on messages while I waited for the appointed time. The restaurant appeared very busy for an evening early in the week, and I began to take notice of the environment and the work going on about me, if it could even be called "work" for it appeared that the team and its two managers were having great fun.

The server who refilled my glass was pleasant and attentive, but not pushy though I declined to order any food. Guests were greeted cheerfully and promptly by the hostess and one of the managers. I observed servers running food for co-workers, and prebussing tables efficiently. I overheard the other manager praising a busboy here and a server there for their thoroughness. As guests were departing, at least one hostess of manager inquired about their dining experience as they held the door open. Smiling people exited, smiling people entered. I had observed a friendly, fun, well-choreographed production that appeared to have left one and all satisfied.

At the appointed time, I asked my server to please let Ron know that I was there. Within a minute, one of the two managers I had been observing came over and heartily greeted me, inviting me back to his office. As we passed through the kitchen, I was pleased to see how clean the stainless steel work surfaces were, despite the busy work that continued. The kitchen team communicated with one another and the serving staff clearly amidst the flurry of hot and cold dishes being served up.

Once in Ron's office, before we began to discuss the human resource matter, I asked him how he was enjoying his promotion to general manager. Ron told me the story of working for the restaurant in high school as a bus boy and dishwasher, continuing as a host and server during college, and how he came to be invited into the management training program as graduation neared. Ron radiated enthusiasm for his company, his location, his guests and his team. He then pivoted to the matter I had come to advise him about, beginning with his take on the situation and his options for resolving the matter. We discussed the options and possible outcomes briefly, and then I left Ron to make his management decision.

Driving home that evening, I smiled to myself, acknowledging that I had met Ron and had observed his history with the company before we had even made our acquaintance at 8:45. Every team-oriented employee, every satisfied guest, every spotless dining and food preparation surface served to exemplify what Ron had lived each day of his professional career. Ron didn't coach with words--he modeled the attitude and behaviors and his team simply followed suit in their own personalities and performances. No ego, no fear, just plain simple alignment between principles, attitude, and action leading to a desired outcome.

I was fortunate to have visited Ron's restaurant and to have met Ron that evening...even a coach needs a Coach each day.

TODAY'S QUESTIONS: Have you developed the confidence of self and the cultivated the utter disregard for your own ego to remain open to the teachable moments that God presents you with in your career, in your community, and in your family?