Today, U.S. District Judge Richard Leon ruled that the Federal Reserve’s implementation of the Durbin Amendment of the Dodd-Frank financial overhaul, which sets price controls on what banks and credit unions can charge retailers to process debit card purchases, was not draconian enough. Though I am no fan of either Dodd-Frank or the Durbin Amendment, this is a severely flawed reading of the law based on a false definition of “legislative intent.”
Should the Fed adopt Leon’s interpretation, it will almost certainly result in more bank and credit union fees for consumers. The Fed would also open itself up to even more litigation on the price controls, including constitutional issues involving the property right to seek a return on capital invested guaranteed by Due Process and Takings clauses of the 5th Amendment.
In 2011, the Fed set price caps on debit card interchange fees at 21-26 cents per transaction. Although this was higher than the 7-12 cents the Fed had initially proposed in late 2010, and let banks and credit unions cover somewhat more of the costs of the debit card network infrastructure, it still slashed average fees to retailers by more than half and did not allow any profit to be made on the retailer side of the transaction. So finanical institutions made up this loss, as free-market scholars predicted they would, by shifting costs to debit card consumers.