[Cross-posted at AEI's Enterprise Blog.]

Years ago, I reviewed a rulemaking record involving an amendment to the FTC’s regulations on care label instruction for clothes. After examining the factual support for one proposed provision, I noted: “The FTC is about to promulgate a federal law because in a small town in Ohio ten years ago a pair of red pajamas ran in the wash.”

History repeats itself, and Congress is now on the edge of the cliff of enacting a federal price control law because last month a corporate executive called a Senator to bitch about his costs.

The law is the Durbin Amendment to the financial reform bill, which provides for regulation of debit card interchange fees. Durbin’s formal rationale bleeds for the little guy, but in his speech introducing the proposal he said  that he was moved to act by the CEO of Walgreen’s. Three days later, the Senate passed it 66-33.

The multi-party battle over interchange fees has gone on for quite a while now.  Pick your side, though I personally go with the conclusion voiced by Big Government:

The Durbin amendment imposes a price control scheme on the fees oil companies and retailers pay when they accept payment by credit cards.  The amendment was conceived and pushed for by lobbyists for big oil companies and big retailers like BP and Wal-Mart.  Their goal is simple — shift the costs of accepting credit cards from their bottom line to the consumers.

Durbin admitted that he offered the amendment after detailed discussions with a big retailer CEO.  The bottom line is that the Durbin amendment will put billions of dollars into the pockets of Wal-Mart, big oil companies like BP and other big box retailers who depend on consumers and their credit cards for revenue.

However you lean a priori (and not many love the finance industry these days), two points are crucial:

• First, interchange fees present difficult and complicated issues. Yesterday, the International Center for Law & Economics and the Mercatus Center of George Mason University put on an absolutely first-rate conference on The Economics and Regulation of Payment Card Interchange Fees.  Todd Zywicki’s background paper is available, as is a recent ICLE blog exchange, and the webcast should be up soon. No one understands the issue very well, and it is extremely improbable that the Durbin Amendment would have outcomes remotely related to the claimed desires of its supporters. (For an example of unintended consequences: “State treasurers from 47 states . . .  oppose the Durbin amendment.  .. , according to Shane Osborn, Nebraska’s State Treasurer, ‘The Durbin amendment would undermine federal and state efforts to provide financial products to millions of low-income Americans, and could shift the cost of card usage to those who can least afford it.’“) Perhaps The Ox-Bow Incident, the classic tale of a mistaken lynching, should be required reading up on the Hill. The level of legislative whimsy involved here is stupefying, and if Congress wants to act it should be conducting hearings that thoroughly probe the issue, starting with analysis of the material presented yesterday.

• Second, Digital Commerce — the growth of electronic payments systems — is an immensely important enabler of globalization, innovation, competition, decentralization, and other changes that are unleashing our collective energies and creativity and vastly improving humanity’s lot. Digital commerce is a platform upon which millions of people can build their own structures, economic and otherwise, just as Microsoft Windows (and Linux) are platforms for personal empowerment, and UPS and Federal Express are crucial to the economics of large and small businesses world-wide. The Durbin amendment is a fundamental attack on this platform – and none of its supporters seem to understand this.  To meddle with this complex and creative platform, casually, using the intellectual equivalent of the excuse that a pair of red pajamas once ran in the wash, is beyond whimsy. Maybe the CEO of Walgreen’s should learn how to do laundry.