Does Dodd-Frank Have You Reaching for Your Cash?

In a society steadily moving toward a cashless future (if not yet a penniless one), we may be seeing a return to cash transactions in some cases, for a surprising reason:

A new law that was supposed to reduce costs for merchants that accept debit cards has instead sent Mr. Scherr‘s monthly processing bills much higher and forced him to reassess the way he does business.

That’s from an interesting Wall Street Journal article about an unintended consequence of the Dodd-Frank financial-overhaul legislation.Vendors used to pay on a sliding scale for debit-card transactions; Dodd-Frank set a flat fee, which can lead to higher payments on small transactions:

Many business owners who sell low-priced goods like coffee and candy bars now are paying higher rates — not lower — when their customers use debit cards for transactions that are less than roughly $10. … “Overnight, the variable costs of a transaction have tripled,” says Mr. English, who runs a marketing company that devises payment programs for vending machines. Some machine operators will raise prices and offer 25-cent discounts for cash starting in January, he says.

The transaction cost will likely get passed along to customers:

Redbox, a unit of Coinstar Inc. that rents movies through vending machines, says it is raising prices by 20% to $1.20 a movie starting next month due to higher costs, including debit-card fees. The company declined to specify how much of the increase was due to higher fees.

(HT: Hafsah M. Al-Hassan)


If we are heading towards a cashless future (and I agree we are) will governments, who are historically responsible for the money infrastructure take over the digital money infrastructure (storing, transfer) as well? Where would this leave retail banks, considering the number of people who just open bank accounts not to have piles of cash lying around?


An interesting thing I learned in dealing with credit card processors is that most sellers are forbidden from charging different amounts based on whether you use a credit card or not. They also can't have a minimum purchase amount for credit cards. If you want to use Visa/Mastercard, you have to play by their rules.

So that thing where the gas station owner puts up a hand written sign saying "$10 minimum payment for credit cards" is almost certainly a breach of the contract with their processor.


Vendors can charge different prices as long as they are explicitly stated (at least in the states I'm familiar with: New York, Georgia, Florida).

John B

That's right. Connecticut passed a law specifically to allow cash reductions for gasoline purchases.


I can't quite see this "cashless future" thing. Sure, we now have non-cash options, but that does not imply that cash will go away, any more than say cheap video cameras will make the written word go away. We just have more options, so we can choose whichever best suits a given situation. As the article shows, sometimes cash - and even the penny! - is the better option.


Yeah, but paper made gold coins go away, and gold made sea shells go away. Electronic cash is still conceptually cash, just in a slightly different form. If we are still using physical tokens to transfer symbolic value around in 2050, I will be incredibly shocked.


No, paper did not make gold coins go away. Government chose to stop coining gold, and (in the case of the US) to prohibit owning gold coins. See "Executive Order 6102", 1933.

Jack Skellington, Esq

A Wall Street Journal article that contains anecdotes indicating that regulation harms small business? Amazing. Not sure what it has to do with economics...oh that's right, nothing at all!

There are mountains of data on variable pricing mechanics. Retail consumers despise variable pricing, it's not going to happen. There are mountains of data on pricing in reaction to various eternal cost increases. At the extreme margin, where this change is, it almost never results in actual compensating price increases, never mind that the overall effect is likely an aggregate *decline* in overhead for most merchants.

This is an opinion based hit piece, not a news article. Freakonomics should know better. To be clear, it's not an ideological point for me, it would be as frustrating to see a puff piece from Mother Jones about a mom and pop grocery being forced out by Wal-Mart.

Try harder, boys, there's more than enough content without this dross.



Nice. Ignore the data points in the story and declare it an opinion.


The monster Frankendodd strikes again. Are we surprised that the Politistein scientists don't know what they're doing when they sew together random pieces of economic flesh, zap it with a congressional vote, and expect it to live and love forever? Time for the pitchforks.


Not much of a surprise. Anytime sliding scale fees are capped, the low end is raised to make up for lost profits. It's why we're seeing debit card and checking account fees. They're probably short term solutions as eventually people will be fed up with them, but they are pretty good money makers during their run.

ben w.

Yes. Frank-Dodd is precisely the reason Bank of America announced their $5/month Debit-card usage fee to customers. If they had just called the spade a spade and announced it as the "Frank-Dodd Wall Street Reform and Consumer Protection Act Debit Fee" they might have avoided much of the confusion, PR debacle, and lost customers. Maybe.

What would be the public's reaction if Congress passed a law limiting the amount "BigTech" can charge for iPhone/Andriod apps? "Since BigTechhas a monopoly on iOS/Andriod apps, fees for apps are capped at $.25" The arbitrary nature of the regulation would become apparent, and no one would be surprised if Apple and Google starting looking elsewhere to collect fees to prevent the bloodletting about to unleashed by millions of users downloading arbitrarily-cheap apps.


Well done, Senator Durbin, well done. You protected all of us from those evil banks.

wells anderson

Tried to make a small purchase of less than $2 and was denied for using debit card. I can understnad how laws such as this raise the cost. I declined the purchase because I didn't have any cash. I trade with two stores of which one uses cash or debit card, and the other takes everything. My debit or cash only store has much better pricing. I could used a credit card with cash back at the other store, but the dividend for credit card purchases does not outweigh the cash and debit card only store.


Dodd-Frank set a flat fee, which can lead to higher payments on small transactions.

That's misleading. Dodd-Frank didn't set a flat fee. It capped the fee.

Here's a question I don't actually know the answer to. Does profit margin indicate a lack of competition. I think Mike B hit the nail on the head with his observations.

Here's something about profit margin as well: