Durbin's Debit Debacle

An op-ed in the Washington Examiner explores the impact the Durbin Amendment has had on banks, small businesses and cardholders. The impetus for this opinion was the recently release of a study completed by the Fed, as required by the Durbin amendment, to track interchange rates across financial institutions exempt from the law and those that are regulated. For those interested, the Fed’s report can be found here. The piece in the Washington Examiner comments:

What the banks not unpredictably did after the law went into effect was shift costs onto the backs of the people who use debit cards — by charging new or higher fees for not maintaining a certain (usually, high) balance, or charging more for insufficient funds or charging account holders a fee for not using their cards often enough (“inactivity” fees).

Perhaps most egregiously of all, Durbin’s legislation gives big box retailers an artificial competitive advantage over smaller retailers, who can less afford to pay more in fees and who do not have economies of scale operating in their favor. It’s one thing for the government to help the poor. It’s another thing entirely for the government to help already very successful large-scale retail chains. That’s not capitalism. It’s crony capitalism.

The op-ed is in support of the Financial Choice Act which would do away with many aspect of the Durbin Amendment:

The whole mess should be undone and ought to be among the items on President-elect Trump’s to-do list. Texas Rep. Jeb Hensarling has introduced a bill to do just that — the Financial Choice Act, which would — as we say in the country — throw the Durbin Amendment and all its ill effects in the woods.

If the Durbin amendment does go away and rates are no longer set by the Fed, I would be cautious about thinking that interchange rates would float back up to pre-Durbin levels. There may be some payment categories that would see an increase, but the competitiveness of the market will keep a lid on rates. Many of the largest merchants have negotiated rates at or below Durbin levels already.

Overview by Sarah Grotta, Director, Debit Advisory Service at Mercator Advisory Group

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