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ICLE Statement on FCC Chairman Pai’s Proposal to “Reverse the Mistake of Title II” PDF Print E-mail
Wednesday, 26 April 2017 14:29

Today, Federal Communications Commission Chairman Ajit Pai announced the initiation of a rulemaking that could lay the groundwork for a reversal of his predecessor’s controversial 2015 Open Internet Order (OIO).

By questioning the unprecedented and ill-supported expansion of FCC authority that undergirds the Order, Chairman Pai has taken a crucial step toward re-imposing economic rigor and the rule of law at the FCC.

In seeking to review and correct former Chairman’s Wheeler’s questionable understanding of both the law and the economics of the OIO, Chairman Pai affirms his understanding that the dynamic Internet economy doesn’t lend itself to regulation by rules intended for static public utilities like water or electricity providers. ISPs operate in complex, unpredictable markets and face stiff (and increasing) competition. Regulation by inflexible, one-size-fits-all rules was never suitable.

The 2015 OIO was the FCC’s third serious attempt to enact net neutrality rules. Former Chairman Wheeler claimed authority for his endeavor by classifying ISPs as common carriers under Title II of the Communications Act, and he claimed separate authority to impose a sweeping “Internet conduct” rule to micromanage ISPs — ironically, in the supposed service of increasing infrastructure investment.

In fact, the imposition of common carrier rules upon ISPs is a virtual guarantee that investment will subside, innovation will stagnate, and the market will become permanently dominated by a few large companies. As Chairman Pai noted today: “Our nation’s smallest providers simply do not have the means or the margins to withstand the Title II regulatory onslaught.”

For many of us the fundamental problem with the OIO is quite simple: The Communications Act, as it currently stands, does not actually authorize the FCC to adopt net neutrality rules. You may think that’s appalling and surprising, but such are the realities of interpreting and enforcing laws written to govern telegraphs in 1934 (and amended in 1996, but not to address the Internet) to govern 21st-century communications networks.

Of course, there’s a simple solution to that problem: Congress can amend the Act or pass a new law if it decides it wants the FCC to have the authority to implement net neutrality rules.

Chairman Pai’s efforts are an important first step on the road to that eventuality.

Selected ICLE work on this issue:

  • The Feds Lost on Net Neutrality, But Won Control of the Internet, Wired, here
  • Net Neutrality's Hollow Promise to Startups, Computerworld, here
  • Since When Is Free Web Access a Bad Thing?, The Wall Street Journal, here
  • How to Break the Internet, Reason Magazine, here
  • Netflix’s Predictable Net Neutrality Conversion, The Hill, here
  • Understanding Net(flix) Neutrality, Forbes, Oregonian Baltimore Sun, here
  • Net Neutrality is Bad for Consumers and Probably Illegal, Truth on the Market, here
  • Court strikes down Net neutrality rules but grants FCC sweeping new power over the Internet, Truth on the Market, here
  • ICLE & TechFreedom Policy Comments on Net Neutrality, here
  • TechFreedom & ICLE Legal Comments on Net Neutrality, here
  • ICLE & TechFreedom Comments on Communications Act Rewrite, here
  • US Telecom v. FCC (DC Cir.), Amicus Brief of ICLE & Leading Law & Economics Scholars, here
  • Thirty-two Scholars of Law and Economics Urge the FTC to Advise the FCC to Employ Case-by-Case Rules in Regulating Net Neutrality, letter to the FTC, here
Unreasonable and Disproportionate: How the Durbin Amendment Harms Poorer Americans and Small Businesses PDF Print E-mail

Today, the International Center for Law & Economics (ICLE) released a study updating our 2014 analysis of the economic effects of the Durbin Amendment to the Dodd-Frank Act.

The new paper, Unreasonable and Disproportionate: How the Durbin Amendment Harms Poorer Americans and Small Businesses, by ICLE scholars, Todd J. Zywicki, Geoffrey A. Manne, and Julian Morris, can be found here; a Fact Sheet highlighting the paper’s key findings is available here.

Introduced as part of the Dodd-Frank Act in 2010, the Durbin Amendment sought to reduce the interchange fees assessed by large banks on debit card transactions. In the words of its primary sponsor, Sen. Richard Durbin, the Amendment aspired to help “every single Main Street business that accepts debit cards keep more of their money, which is a savings they can pass on to their consumers.”

Unfortunately, although the Durbin Amendment did generate benefits for big-box retailers, ICLE’s 2014 analysis found that it had actually harmed many other merchants and imposed substantial net costs on the majority of consumers, especially those from lower-income households.

In the current study, we analyze a welter of new evidence and arguments to assess whether time has ameliorated or exacerbated the Amendment’s effects. Our findings in this report expand upon and reinforce our findings from 2014:

Relative to the period before the Durbin Amendment, almost every segment of the interrelated retail, banking, and consumer finance markets has been made worse off as a result of the Amendment.

Predictably, the removal of billions of dollars in interchange fee revenue has led to the imposition of higher bank fees and reduced services for banking consumers.

In fact, millions of households, regardless of income level, have been adversely affected by the Durbin Amendment through higher overdraft fees, increased minimum balances, reduced access to free checking, higher ATM fees, and lost debit card rewards, among other things.

Nor is there any evidence that merchants have lowered prices for retail consumers; for many small-ticket items, in fact, prices have been driven up.

Contrary to Sen. Durbin’s promises, in other words, increased banking costs have not been offset by lower retail prices.

At the same time, although large merchants continue to reap a Durbin Amendment windfall, there remains no evidence that small merchants have realized any interchange cost savings — indeed, many have suffered cost increases.

And all of these effects fall hardest on the poor. Hundreds of thousands of low-income households have chosen (or been forced) to exit the banking system, with the result that they face higher costs, difficulty obtaining credit, and complications receiving and making payments — all without offset in the form of lower retail prices.

Finally, the 2017 study also details a new trend that was not apparent when we examined the data three years ago: Contrary to our findings then, the two-tier system of interchange fee regulation (which exempts issuing banks with under $10 billion in assets) no longer appears to be protecting smaller banks from the Durbin Amendment’s adverse effects.

This week the House begins consideration of the Amendment’s repeal as part of Rep. Hensarling’s CHOICE Act. Our study makes clear that the Durbin price-control experiment has proven a failure, and that repeal is, indeed, the only responsible option.

Click on the following links to read:

Full Paper

Fact Sheet


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