Durbin Amendment Revisited

by Raymond Pucci 0

The hotly debated Durbin Amendment will soon receive further scrutiny in Washington given that many financial regulations are on the table for review or repeal by the Trump administration and allies in Congress. According to the following article, community banks feel the controversial 2010 legislation has reduced both their fees and payment routing flexibility.

A Durbin do over is in the works, and that’s a good thing. Back in 2010, the Durbin amendment, which caps fees on debit-card transactions, was snuck into Dodd-Frank at the 11th hour as a giveaway to the retail sector. Fast forward to 2017 and we see two things—retailers have pocketed the profits intended and promised to consumers, and Congress has an opportunity to right bad public policy in the form of price fixing. Federal Reserve data show that Durbin price controls have eroded small banks’ interchange revenues. Per-transaction fees on signature transactions were down 4.4 percent between January 2011 and October 2015 for small issuers, while fees on PIN transactions were down 19.6 percent.

The data also show that authorization, clearing and settlement costs at community banks and other low volume institutions are 17 times higher per transaction than those for high-volume card issuers. This data likely underestimates the true cost to small issuers because it omits several cost components, including transaction monitoring, customer inquiry and resolution, and card production and delivery costs.

So where are the Durbin amendment “savings” going? Big-box retailers have already admitted that they pocketed Durbin revenues instead of passing them on to consumers as promised. George Mason University’s Todd Zywicki has detailed how Durbin price controls hurt low-income consumers by decreasing the availability of free checking accounts, increasing account fees, raising minimum balance requirements, and eliminating debit rewards. And the Federal Reserve Bank of Richmond has found interchange fees for nearly 90 percent of smaller merchants either increased or stayed the same after Durbin.

Faced with these facts, Durbin supporters still argue the price controls are popular with merchants and consumers. While it’s not surprising that the big box merchants who pocket billions of dollars in new revenues each year should support the government’s intervention into the payments marketplace, consumers are suffering a loss of freedom and choice at the register.

The battle lines have been drawn as financial institutions and merchants prepare to fight over the Durbin Amendment. No one’s crystal ball can predict the outcome. An air of de-regulation is wafting over Washington, plus other financial issues revolving around Dodd-Frank will also be in the limelight. Expect further cross-industry debate about the ups and downs of Durbin, but no change anytime soon. Meanwhile, lobbyists from both sides are drooling over what will be a very profitable year.


Overview by Raymond Pucci, Associate Director, Research Services at Mercator Advisory Group

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