Former Speaker of the House–and current Minority Leader–Nancy Pelosi and her husband, Paul Pelosi, bought 5,000 shares of Visa stock at a preferential IPO price in 2008. That same year, Speaker Pelosi failed to support a bill that would have protected consumers and amended anti-trust laws so that credit card companies would have to negotiate their “swipe fees.”

The Pelosi-Visa IPO story has made the rounds ever since Breitbart editor Peter Schweizer revealed the connection in his new book, Throw Them All Out, which was featured on CBS’s 60 Minutes in November (Schweizer’s book and the CBS report were targeted by Pelosi’s Congressional office in a November 13 statement).

According to Schweizer, the Pelosis were granted the IPO opportunity from Visa just before Nancy could supported the Credit Card Fair Fee Act, a bill which had cleared the Judiciary Committee and reportedly had 77 percent support from the American public (according to the Merchant’s Payment Coalition). If passed, the bill would have dented Visa’s profits by reducing so-called “interchange fees,” the 1 to 3 percent charge retailers pay Visa when customers use their credit cards for purchases. The four major credit card companies reportedly collected $48 billion in 2008 from interchange fees.

Although Pelosi has been known to crusade against credit card companies, disclosure reports indicate that she and her husband bought between $1 million and $5 million of Visa stock (Congressional members are only required to report ranges, not specific amounts) at the IPO price of $44 a share. Two days later, the stock soared to $65 a share, producing a 50 percent profit. The Pelosis then bought more Visa stock, and by the time they engaged in their third purchase on June 4, 2008, Visa was selling for $85 a share.

Sources from the finance industry who worked on Wall Street and contacted Breitbart.com tell Big Government that what Pelosi most likely received was a special rate for “institutional clients,”–a rate usually reserved for major corporations and mutual funds, as opposed to the “retail rate” that is typically offered to individuals.

The special institutional rate is typically offered when there is a “hot IPO“–such as Visa–where the demand exceeds the supply, and buyers are anxious to purchase the initial offering of shares.

According to a former Wall Street source who worked at EF Hutton: “That isn’t necessarily illegal, but when that special institutional rate is offered to a politician who is voting on legislation that may directly impact the company whose stock they are purchasing, there is a possible conflict of interest.”

The source explained that it is within the power of the company offering the stock, or the brokerage firm through which the stock is being sold, to offer a particular client the preferential “institutional rate.” However, according to the source above and other Wall Street insiders, there is almost always a paper trail called a “directed order.”

A directed order is issued when a client gives specific instructions to their broker concerning the order’s routing destination.

Typically, the allocation of IPO shares is decided and distributed by a “syndicate department” within the brokerage firm, which would have a record of the directed order. In this case, if such an order was given, the order could have come from Wells Fargo, the brokerage firm in San Francisco that Mr. Pelosi uses.

Big Government learned about the possible Wells Fargo/Visa paper trail in the Pelosi IPO on the heels of breaking news coming from Washington today.

Earlier this morning, Roll Call reported that Pelosi has apparently commingled her business portfolio contacts and her congressional activities. According to the article, in May 2010 Pelosi gave an economic presentation in the U.S. Capitol at which she introduced a group of several Democratic leaders and private businesspeople–whom she referred to as consultants who were offering their input on economic growth.

One of the consultants was William Hambrecht, a San Francisco based investment banker who employed Pelosi’s son and has participated in several business deals with her husband–one of which allegedly benefited the Pelosis to the tune of $100,000. The most famous deal the two had worked on together was their investment in the failed United Football League (UFL).

Pelosi’s U.S. House office spokesman Drew Hammill says that Hambrecht was not involved in the Visa IPO deal in any way, and his involvement in Congress has not been exclusive to Pelosi:

Hambrecht has been an intellectual resource on both sides of the Capitol. In these meetings, Hambrecht has spoken about the need, in light of the financial crisis, to help keep homeowners in their homes, help small businesses grow and hire, and help small banks gain access to credit–all macroeconomic goals to grow and stabilize our economy and strengthen our competiveness.

According to Roll Call, however, the May 2010 event was the fourth time since 2007 that Pelosi had invited Hambrecht to a congressional event without disclosing her personal business ties with him. In October 2009, the Washington Post reported that Paul Pelosi had purchased a team in Hambrecht’s league for $12 million.

Roll Call reported:

According to Pelosi’s disclosure form, most of the Hambrecht-linked investments produced losses or very little income last year except for one — an investment worth $5 million to $25 million in an investment firm called Matthews International Capital Management. The firm, partly owned by Hambrecht, specializes in Asian investments and earned Paul Pelosi somewhere from $100,000 to $1 million in income last year. Paul Pelosi also maintained a brokerage account with Hambrecht’s firm last year worth $500,000 to $1 million.

If there was, indeed, a directed order, then there is a paper trail. As the former EF Hutton source speculated: “There’s a paper trail out there somewhere. It may be hard to find, but someone inside Wells Fargo, probably in the syndicate department has access to it.”

Yesterday, I wondered how Nancy Pelosi and her husband were able to participate in Visa’s IPO in March 2008. It is very difficult for an individual investor to participate in IPOs, especially those which are heavily ‘oversubscribed’ as Visa’s was. It was the hottest IPO of the year, drawing what one analyst described as “extreme demand.” So, this tidbit from Newsweek’s story on Visa’s campaign to curry favor with Pelosi caught my attention:

Separately, Pelosi’s husband, Paul, a major investor in California, got a lucrative phone call from his personal broker—a pre-screen invite in March 2008 to take part in Visa’s $17.9 billion public stock offering, at the time one of the hottest stock offerings in an otherwise soft market. The initial-public-offering price was $44 per share and was limited to institutional investors and a group of specially selected individuals. Almost $18 billion was made available in public stock to preselected investors. Paul Pelosi made the cut.

Wait, what? He was called and ‘invited’ to purchase shares in the IPO? Seriously? Let’s isolate one particular sentence from this graph:

The initial-public-offering price was $44 per share and was limited to institutional investors and a group of specially selected individuals.

Specially selected individuals? Selected by whom? And, for what reasons, specifically?

If you are John Bresnahan at Politico, this will all seem like a fortuitous coincidence. The Pelosis obviously have lots of money to invest and their broker may have been one of the few people empowered to select who was lucky enough to buy into the hottest IPO of the year. Although, individual investors with access to IPOs tend to be far more active and wealthy investors than the Pelosis, a ‘reporter’ at Politico could view it all as perfectly normal. But, let’s look at the larger context here.

As Newsweek notes, Visa was very worried about Democrat proposals to regulate interchange, or “swipe” fees. Late in 2007, they organized a campaign to “court” then-Speaker Pelosi to plead their case and block new legislation regulating their business. One of their lobbying firms even hired a former top Pelosi staffer, Dean Aguillen, and the company, its executives and lobbyists began donating to her campaign.

Dean Aguillen was prohibited from lobbying his former boss for one year, but, according to Newsweek he provided key strategic advice to Visa:

By law he was unable to lobby his former boss for a year, but he immediately registered to lobby Congress on the credit-card issue, offering guidance to other lobbyists on Visa’s team during strategy sessions, according to a lobbyist present in strategy deliberations.

In other words, the former Pelosi staffer was helping Visa figure out a way to win her support on their top legislative priority.

In Spring 2008, Rep. John Conyers introduces the very legislation that Visa feared most and just a handful of days later, Paul Pelosi is invited to buy shares in Visa’s IPO. Again, really? Who made that decision? Was it Dean Aguillen, perhaps?

If that decision was in any way related to Nancy Pelosi’s position as Speaker, she may run afoul of House ethics rules. As even Politico notes:

Under House rules, lawmakers are prohibited from using their official position “for personal gain.” This ban includes instances when a lawmaker uses “his political influence, the influence of his position … to make pecuniary gains” or take any official action that affects their own personal finances, the House Ethics Manual states.

Being part of Visa’s IPO, where the stock price rose 50% in two days, would generate a heck of a lot of “personal gain.” Was the invitation in any way tied to her position as Speaker? As Politico noted this morning, Nancy Pelosi really does have a ‘golden touch.’

The effort began in earnest in late 2007. Ogilvy, one of Visa’s outside lobbying firms, picked off one of Pelosi’s government-affairs advisers, Dean Aguillen, who had close ties in the speaker’s office. Aguillen quit the speaker’s team and went to Ogilvy in December 2007. By law he was unable to lobby his former boss for a year, but he immediately registered to lobby Congress on the credit-card issue, offering guidance to other lobbyists on Visa’s team during strategy sessions, according to a lobbyist present in strategy deliberations.

Visa wanted to meet with Pelosi and her top aides to make the case against the swipe fees. That summer Visa’s outgoing CEO, Carl Pascarella, bumped into Pelosi on the street in the San Francisco neighborhood they share, and she arranged for him to contact her Washington office for a meet-and-greet, according to sources families with the encounter.

Around the same time—on July 21, 2008, to be exact—Pelosi’s reelection campaign received a $1,000 donation from Visa’s political-action committee. Two days later, according to Pelosi’s office, the speaker met Pascarella and the incoming Visa chief executive, Joe Saunders, in her Capitol Hill office. The three exchanged pleasantries and no specific legislation was discussed, according to Pelosi’s office.

Aguillen, for his part, also contributed $1,000 to Pelosi and another $1,000 to the Democratic Congressional Campaign Committee during the first half of 2008.

Separately, Pelosi’s husband, Paul, a major investor in California, got a lucrative phone call—a pre-screen invite in March 2008 to take part in Visa’s $17.9 billion public stock offering, at the time one of the hottest stock offerings in an otherwise soft market.

The initial-public-offering price was $44 per share and was limited to institutional investors and a group of specially selected individuals. Almost $18 billion was made available in public stock to preselected investors. Paul Pelosi made the cut.

The top financial institution to handle the sale was Wells Fargo Shareholder Services, a bank where Paul Pelosi, a seasoned investor, held an account. Before the IPO, Pelosi received a call from his financial adviser at Wells Fargo alerting him that he had been approved to purchase Visa stock and, considering the public buzz around the stock, recommending he buy, according to Pelosi’s office.

Paul Pelosi initially bought 5,000 shares at the $44 initial price. Within a couple of days, the shares’ value soared to $64. Paul Pelosi purchased 15,000 more shares over the next three months, at much higher prices. The total quantity was valued as high as $5 million, according to the then-speaker’s financial-disclosure form. In late 2008, when the stock market soured, Pelosi sold 1,000 of the first IPO shares for a meager profit of $2,500 to $5,000, records show. He has kept the other 19,000 shares, which now are valued at $95 each.

Nancy Pelosi’s office denies that the meetings, the lobbying, or her husband’s stock purchase had any influence on her legislative actions. Drew Hammill, a spokesman for the Democratic leader, said Paul Pelosi’s finances are kept distinctly separate from the congresswoman’s legislative work, and she complies with all the legal as well as ethical obligations of her position. He also pointed out that Pelosi has repeatedly advocated for legislation the credit-card industry dislikes.

Read more here.

I will have much more to say on this soon, as the legislative maneuvering around the recent credit card bill is a rich narrative and suggests there may be something to Kroft’s suspicions. For now, though, I have a more fundamental question: How did Nancy Pelosi get access to Visa’s IPO in the first place?

Participation in a stocks IPO, i.e. Initial Public Offering, is one of the more sought after trades on Wall Street. Often, an IPO investor is able to get into a stock at a relatively low price and realize an almost immediate gain once trading commences, especially if the IPO is “hot” or, rather oversubscribed, meaning more investors wanted shares than were available. Visa’s IPO was blockbuster-level “hot.” As reported by The New York Times:

Visa‘s blockbuster initial public offering is currently oversubscribed for its expected trading start on March 20, Scott Sweet of the research firm IPO Boutique told MarketWatch.

Mr. Sweet told the publication that the I.P.O. is drawing “extreme demand.”

It is very difficult for any individual investors to participate in an IPO, as most of the shares are reserved for major brokerage clients, institutional investors and pension funds. It is so difficult, in fact, the SEC has published an “FAQ” on why it is so difficult for individual investors to participate in IPOs:

The underwriters and the company that issues the shares control the IPO process. They have wide latitude in allocating IPO shares. The SEC does not regulate the business decision of how IPO shares are allocated.

Somebody, somewhere decided to allow Nancy Pelosi-or her husband-participate in what was the most anticipated IPO that year. It could have been one of the underwriters selected by Visa to manage its IPO or it could have been Visa itself that awarded the Pelosis the coveted shares. Who was it? And, did they approach Pelosi or did Pelosi approach them?

In Politico’s attempt to white-wash the burgeoning scandal, they look past the IPO and simply report:

Paul Pelosi, husband of the then-speaker, bought $2 million worth of Visa stock in March 2008.

They completely fail to note or report that Paul Pelosi’s purchase of these shares was an opportunity that the overwhelming majority of investors didn’t have. How were he and his wife, then-Speaker of the House, so lucky?

It is an important question, because Politico does go on to note:

Under House rules, lawmakers are prohibited from using their official position “for personal gain.” This ban includes instances when a lawmaker uses “his political influence, the influence of his position … to make pecuniary gains” or take any official action that affects their own personal finances, the House Ethics Manual states.

So, again, how did Pelosi get access to Visa’s IPO? Did it have anything at all to do with her legislative position? Might be a question worth asking.

The revelation appears in Throw Them All Out, the new book by investigative journalist and Breitbart editor Peter Schweizer, which was the focus of 60 Minutes on CBS this evening, and which is featured in this week’s issue of Newsweek.

Schweizer’s investigation of Pelosi and other members of Congress–from both parties–raises a critical question:  should it be legal for lawmakers to buy stocks in companies directly affected by their legislative efforts?

In early 2008, Nancy Pelosi and her real estate developer husband, Paul, were given an opportunity to buy into a Visa IPO. It was a nearly impossible feat–one that average citizens almost certainly could never achieve. The vast majority of purchase opportunities went to institutional investors, large mutual funds, or pension funds.

Despite Pelosi’s consistent railing against credit card companies, on March 18, 2008, the Pelosis bought between $1 million and $5 million (politicians do not have to report the exact amounts, only ranges) worth of Visa stock at the IPO price of $44 per share. Two days later, the stock price rocketed to $65 per share, yielding a 50% profit. The Pelosis then bought Visa twice more. By their third purchase on June 4, 2008, Visa was worth $85 per share.

How did Nancy Pelosi snag one of the most coveted initial public offerings in history? The facts are still emerging. Yet according to Schweizer, corporations that wish to build congressional allies will sometimes hand-pick members of Congress to receive IPOs. Pelosi received her Visa IPO almost two weeks after a potentially damaging piece of legislation for Visa, the Credit Card Fair Fee Act, had been introduced in the House. If passed, the bill would have cut into Visa’s profits substantially by lowering so-called “interchange fees,” the 1% to 3% charge retailers pay Visa when customers use Visa cards for purchases. Interchange fees are a critical source of revenue for the four credit card companies–$48 billion in 2008, to be exact.

If the Credit Card Fair Fee Act had been passed into effect, it would have amended antitrust laws to require credit card companies to enter negotiations with merchants over interchange fees, and it would have given the Justice Department and the Federal Trade Commission the power to arbitrate if the two sides failed to come to an agreement. For that reason, Visa and the other credit card companies strongly opposed the bill.

The Credit Card Fair Fee Act was exactly the kind of bill one would think then-Speaker Pelosi would have backed. “She had been outspoken about antitrust problems posed by insurance, oil, and pharmaceutical companies,” Schweizer notes, “and she was vocal about the need for controlling interest rates individual banks charged to use their credit cards.”

Initially, the Credit Card Fair Fee Act cleared the Judiciary Committee on a 19-16 vote, and the National Association of Convenience Stores began lobbying for a vote on the floor of the House. “It is imperative to tell your Representatives to request a vote on the House Floor from Nancy Pelosi,” the association urged its members. Still, with at least ten percent of the Pelosi family’s entire stock portfolio invested in a single stock, Nancy Pelosi clearly had a vested interest in ensuring that Visa’s profits were protected. And that is exactly what she accomplished. Despite broad public support for the bill—77% in one study—Pelosi saw to it that the bill never made it to the House floor.

Shortly thereafter, a second bill limiting collusion by the credit card companies on interchange fees was proposed. The Credit Card Interchange Fee Act of 2008, while not as strong as the first bill, would have required greater transparency from credit card companies in informing customers how much they were paying in interchange fees. Yet again, reports Schweizer, “this second bill suffered the same fate as the first, never making it to the House floor.”

By 2009, both bills had garnered even broader bipartisan support and were reintroduced. Under Speaker Pelosi, however, neither bill lived to see a vote on the House floor.

Pelosi eventually supported something called the Credit Card Reform Act. Curiously, the all-important interchange fees went untouched by that legislation. Instead, the bill stated that the interchange fee issue should simply be “studied.” The bill’s other measures would not affect Visa but rather its client banks. In short, the Credit Card Reform Act ensured that Visa and the other credit card companies dodged a potentially costly bullet.

None of that, however, prevented Pelosi from grandstanding. She publicly declared that the Credit Card Reform Act sent a “strong and clear message to credit card companies” that they would be held to account for their “anti-consumer practices.”

In the wake of the bill’s passage, the Pelosis’ shares of Visa stock rose. Indeed, according to Throw Them All Out, “the IPO shares they had purchased soared by 203% from where they began, while the stock market as a whole was down 15% during the same period.”

Nancy Pelosi is hardly the only member of Congress to be given IPOs, but Pelosi has been especially “lucky” at landing them. She and her husband have participated in at least 10 lucrative IPOs throughout her career. In 1993, Pelosi purchased IPO shares in a high-tech company named Gupta, watched the stock price leap 88% in 24 hours, then seized the profits by selling the stock the next day. The Pelosis did the same thing with Netscape and UUNet, resulting in a one-day doubling of their initial investment. Other fast and lucrative IPO flips included Remedy Corporation, Opal, Legato Systems, and Act Networks.

Schweizer says Nancy Pelosi’s financial disclosure forms typically mask the precise dates of her stock buys. He cites the Pelosis’ December 1999 stock purchase of between $250,000 and $500,000 in shares from high-tech company OnDisplay. A few months later, OnDisplay was bought by Vignette, which resulted in up to $1 million in capital gains for the Pelosis. What was unusual about the transaction is that Vignette’s IPO was underwritten by a major campaign contributor and longtime friend of Nancy Pelosi, William Hambrecht.

Throw Them All Out also chronicles the Pelosis’ $100,000 IPO purchase of Clean Energy Fuels at roughly $12 a share. Schweizer alleges that as Speaker of the House, Pelosi pushed several bills beneficial to the company.

Similarly, in November 2007, Pelosi bought $500,000 in the IPO for Quest Energy Partners before proceeding to champion the natural gas-related legislation that stood to significantly benefit the company. When Tom Brokaw asked her whether her significant personal investments in natural gas represented a conflict of interest, Pelosi shrugged off the question by hiding behind the crony capitalist’s false credo: “That’s the marketplace.”

So what does this mean to the average American? Fall starts the season where consumer spending ticks up dramatically. We are spending money to send our kids back to school. Halloween has also become a bigger ticket holiday for many of us and of course there is the spendgasm of Thanksgiving and Christmas. Millions of people would accumulate points and use those during this time to subsidize the cost of school supplies and the slew of fast approaching holidays. For those people the end of these rewards programs takes literally hundreds of dollars out of their pockets.

The culprit in the Dodd-Frank bill that resulted in many banks pulling back their debit rewards programs is the Durbin amendment. In a nutshell, each time your debit card is swiped at a store or restaurant, that merchant pays a transaction fee. The benefit to the merchant in paying this fee is that they get to accept your card. That is why the door of most establishments displays the Visa, MasterCard, American Express, and other logos from financial service companies. The more methods of payments they accept the deeper their pool of potential customers.

There is no doubt that a business would do itself great damage by not accepting credit or debit cards with the Visa or MasterCard logo on it. On the minus side, they must pay for this privilege. The purpose of the Durbin amendment was to put a cap on this transaction fee, and limit the profits that the banks could make from merchants.

According to the Durbin Amendment, a hard cap of 12¢ per transaction will be put into place. This replaces the previous method of calculating transaction fees based upon the cost of the item. Before the Dodd-Frank bill, banks would charge a transaction fee of approximately 1% of the total cost of the goods or services that had been purchased. The 12¢ rule is now in play whether you are buying a Cadillac with your card, a computer or a can of Mr. Pibb.

According to J.P. Morgan, this cap will cost them over a billion dollars in lost revenue. In fact many banks claim that 12¢ is too low, and that it costs them more than that to process each transaction. In short, the Durbin amendment removes the incentive for banks to encourage their customers to use debit cards as a method of payment. So as a result, the debit rewards program that many of us have come to rely on are going away.

In the end, this takes money directly out of the pockets of the middle class (money they would have spent with the very merchants the law seeks to help, ironically hurting their bottom line as well). While this legislation was the result of the Democrat battle cry of “Punish the Rich”, I doubt Warren Buffet or Bill Gates is cashing in their debit rewards points in early December to help pay for Christmas gifts. Even worse, banks may now try to discourage the use of debit cards by adding a user fee to each transaction. This fee would be paid by cardholder, not the merchant. That would cost the average American even more.

The Dodd-Frank bill was put forward by the very people who were arguably more responsible for the financial collapse than any of the banks. For those who know the secret handshake of the Keynesian economy cartel, this bill was a triumph of ideology. For the millions of middle class Americans this will feel like a tax increase.

The gift the Fed voted to give on Dec. 16 wasn’t free money through more quantitative easing – or whatever new name they have come up with to make inflation sound nice – although that’s probably coming up soon. Rather, under the direction of an amendment to the Dodd-Frank financial “reform” law by Senate Majority Whip Dick Durbin (D-Ill.), the Fed bestowed near-free access to the services of the vast electronic debit card payment system for some of the nation’s wealthiest retailers – with the tab to be paid for by community banks, credit unions and, of course – you the American consumer.

If the Fed’s proposed rule goes through, come next Christmas Wal-Mart, Walgreens, Home Depot and the other retailers who lobbied for this piece of corporate welfare will have even more overstuffed stockings. These and other retailers benefit greatly from consumers using cards, both in increased sales and in protection from the costs of fraud from bad checks and theft of cash, yet they have gone charging to Washington to for a regulatory “free lunch” to allow them to shift the costs of these valuable services to consumers.

In one of those rare moments of politicians acknowledging the true masters whom they serve, Sen. Durbin admitted on the Senate floor that the CEO of Walgreens, headquartered outside of Chicago in his home state, called him to complain that the transaction fees Walgreens pays to process debit and credit cards were “the fourth largest item of cost for their business.” Durbin actually argued that relieving costs of doing business for a company that makes $2 billion in annual profits was a reason for support price controls on what they pay for financial services.

But the Fed even exceeded Durbin’s order, filling the wish lists of Walgreens and other merchants while giving their customers several lumps of coal. Next holiday season, even if they are not paying vastly inflated prices for the goods they buy due to quantitative easing, American consumers will be losing their free checking, seeing the return of annual fees, and getting significantly reduced reward points for the purchases they make with plastic.

Under the proposed rule the Fed put forward for regulation of interchange fees – the fees card issuers charge retailers to process debit card transactions – merchants will never pay more than 12 cents for any customer’s transactions, whether it’s for $1.00 or $10,000.  This goes far beyond the even the language of pro-retailer Durbin Amendment, which required the Fed to “establish standards” to assess whether interchange fees were “reasonable and proportional to the cost,” but did not specify what these fees should be.

According to the Associated Press, the Fed said that average interchange fees in 2009 ranged from 44 to 56 cents. This means that the 12-cent cap will cause a 70 to 90 percent drop in revenues for the banks and credit unions that issue debit cards.  And By the Fed’s own admission, this will not come close covering the cost of processing debit card transactions, let alone allow the banks and credit unions to make a profit from what they charge retailers for the valuable services of electronic payments.

The rule states that card issuers will only be able to recover what the Fed deems to be “allowable costs.” Among the costs that are not “allowable,” according to the Fed, are fixed costs of computers and software, the cost of distributing debit cards, and employee costs for “responding to certain customer service inquiries.” Banks and credit unions can charge merchants a small fee hike for the cost to combat debit card fraud, but only under the strictest of conditions.

According to Professor Richard Epstein, a constitutional law and property rights expert on the faculty of the University of Chicago Law School, this rule is the first price control scheme in U.S. history in which businesses, by design, were required to price below product’s cost. He says in an interview that even under the gasoline price caps of the ‘70s, “no one was asked to sell below cost.”

And this is not only horrible policy; it also likely crosses a constitutional line. As argued by a lawsuit challenging the Durbin Amendment from Minneapolis’ TCF National Bank,  on which Epstein is serving as an attorney, the fee controls likely violate both the Due Process and Takings Clauses of the 5th Amendment because they deprive banks and credit unions that issue cards of their property rights to a return on capital invested. The Supreme Court in its 1989 case Duquense Light Co v. Barasch, affirmed that  a government-set “rate is too low if it is so unjust as to destroy the value of the property for all the purposes for which it was acquired.”

But according to the Fed, the 12-cent cap creates “an incentive to control costs.” And besides, the Fed points out, “the interchange fee standard would not limit the ability of an issuer to earn revenue from other sources, such as by charging fees to its cardholders.”

And indeed, consumers have already been paying for the anticipated costs of the Durbin Amendment. “Free checking as we know it is ending,” reported the lead paragraph of an Associated Press story in October, and the article listed one of the main reasons as “the new regulations limit fees the bank can collect when retailers accept debit cards.”

If Australia’s experience in capping interchange fees for credit cards in 2003 is any guide, the vanishing of free checking could be just the beginning. As George Mason University law professor Todd Zywicki noted in the Wall Street Journal, “Annual fees increased an average of 22% on standard credit cards and annual fees for rewards cards increased by 47%-77%. Card issuers also reduced the generosity of their reward programs by 23%.” And last year, a study by the Government Accountability Office of the U.S. Congress found no “conclusive evidence” that any of the Aussie retailers’ $1.1 billion in savings had been passed on to consumers.

The good news is there are efforts underway in Congress to delay or repeal the Durbin Amendment, and even some Democrat Dodd-Frank supporters have pulled back, correctly perceiving that this measure and the Fed rule implementing it make a mockery of their claim that Dodd-Frank was a victory for consumers over special interests. Even soon-to-be former House Financial Services Committee Chairman Barney Frank (D-Mass.), criticized the Fed on CNBC for setting the fees “too low.”

But the Tea Party movement also has to watch the GOP on this issue, including some in Congress they may normally count as their own. 17 Republicans voted for the Durbin Amendment in the Senate last May, including some ostensible conservatives who would oppose price controls in most other contexts. Georgia Sens. Johnny Isakson and Saxby Chambliss voted aye, for instance, after heavy lobbying from Atlanta-based Home Depot, a firm that American Banker described as “on the warpath” against interchange fees . (The full list of which senators were naughty or nice on their votes on the Durbin Amendment is here.)

Conservatives are often sympathetic to retailers and with good reason. They are hit with the taxes and regulations of Big Government and threatened with threatened with coercive measures from Congress such as union “card check.” Yet when the leaders of their industry lobby for price controls, we must say in unison, “No sale!” This is what several groups in the Center-Right Coalition – from CEI and American for Tax Reform to Phyllis Schlafly’s Eagle Forum – have already done in a letter last summer.

The Fed is taking comments on the rule through Feb. 22, and you can send them your thoughts at regs.comments@federalreserve.gov. Or go  here and follow the instructions for submitting comments. If you wish to share your views on whether Congress should repeal the Durbin Amendment’s price controls, or delay the date the Fed implement them, you can e-mail your members of Congress or call them through the general number of (202) 224-3121.

Meanwhile, it wouldn’t hurt to have some Tea Parties in front of your neighborhood Walgreens and Home Depot communicating that if they want you to shop in their stores, they’ll have to stop lobbying to take away your free checking and card rewards!