The other two words that are most terrifying are Dick Durbin…at least to consumers, small businesses and small financial institutions.
The Fix Was Control
Passed as part of the Dodd-Frank financial reform legislation in 2010, an amendment inserted into the bill by Illinois Sen. Dick Durbin required the Federal Reserve to set prices on fees charged to retailers for debit card processing—establishing price caps on debit interchange fees. The move was the culmination of a lobbying campaign championed by Fortune 500 companies like WalMart. They claimed that a reduction in these fees would be passed along to consumer in the form of lower prices. That, of course, never happened.. A study from the George Mason University law school determined that retail prices didn’t drop after the law passed.
President Trump has made his disdain for the Dodd-Frank Act clear as day. In his first weeks in office, he even signed an executive order that said his administration will roll back the most punitive parts of the law.
This week, a coalition of conservative organizations ranging from the R Street Institute to the Taxpayers Protection Alliance dispatched a letter to Rep. Jeb Hensarling (R-Texas), the chairman of the House Financial Services Committee, urging repeal of the Durbin Amendment, a provision of the law that sets price controls on interchange fees for debit card purchases. If Congress wants to help “drain the swamp,” ending this corporate giveaway would be a great place to start.
Rep. Jeb Hensarling (R-Texas), the Chairman of the House Financial Services Committee, is championing the CHOICE Act, a bill that would repeal and replace Dodd-Frank, providing “economic growth for all, bank bailouts for none.” Hersarling’s legislation would end the taxpayer-funded bailouts of large financial institutions; relieve strongly capitalized banks from the “growth-strangling regulation” that slows has slowed the economy and harmed consumers; and impose tougher penalties on those who commit fraud.
The bill also contains a critical provision that is targeted at ending what is known as the Durbin Amendment, a crony provision inserted at the behest of Walgreens — the billion-dollar retailer conveniently based out of Sen. Dick Durbin’s home state of Illinois. The Durbin Amendment imposed government price controls on debit card fees that retailers are charged when consumers use their debit cards. This was a lose-lose for consumers: The revenue losses associated with the government-imposed price cap led many banks to eliminate free checking and limit awards programs like airline mileage bonuses for purchases.
Last fall, the House Financial Services Committee passed a Financial CHOICE Act that repealed harmful Dodd-Frank Act price controls. That provision would have benefited consumers and small businesses and strengthened small banks and credit unions. The new Congress not only should reconsider it—it should send it to the president’s desk.
These price controls, which apply to interchange fees on debit cards issued by some banks, were added to the Dodd-Frank Act at the last minute and without a single hearing. They weren’t a vital part of the post-collapse legislation, but rather an unrelated proposal offered by Sen. Richard Durbin (D-IL) that merchant lobbying groups had been pushing for a while.
“Consumers are on the verge of getting a great windfall…”
Using retailers’ own words, EPC launched a compelling video focusing on the “broken promises” that retail industry lobbyists made when they pushed for the Durbin Amendment. Now, six years later, “Is the consumer the one that just got screwed?” Watch the video to find out.
This week President Donald Trump is set to order a regulatory rollback for the financial industry with his sights set on the Dodd-Frank Act. As the Trump Administration begins taking action to relieve consumers and businesses of the massive Dodd-Frank regulatory burden, the Administration should begin with one of the most onerous and failed Dodd-Frank policies – the Durbin Amendment.
Passed as part of the Dodd-Frank Act, the Durbin Amendment allows the government to set price controls on fees for debit card transactions. Prior to enactment of Durbin, these fees were not capped, and issuers of debit cards, such as credit unions and banks, were encouraged by free market competition to offer consumers benefits, such as free checking accounts.
NAFCU President and CEO Dan Berger urged NAFCU members to reach out their lawmakers and push them to support the repeal of the Durbin debit interchange amendment in a message Thursday.
The 2017 “Financial CHOICE Act,” which could be introduced in the coming weeks, is expected to include a provision to repeal the amendment, which was included as a late addition to the 2010 Dodd-Frank Act.
Credit Union National Association | February 1, 2017
Credit union leagues in Nebraska and Indiana kept up the regulatory relief drumbeat this week, with calls for pro-consumer regulatory relief in local publications. League efforts in Massachusetts, New Jersey and Ohio led to the first wave of articles, and leagues in Nebraska and Indiana followed suit this week.
In a letter to community bankers, ICBA president and CEO Camden R. Fine writes about the Durbin Amendment’s harmful impacts and calls for the policy to be repealed.
We knew this was going to happen. When Congress passed the Durbin amendment, ICBA and community bankers said government price controls on debit interchange fees would dramatically harm our industry. Now we are witnessing the unfortunate effects of this retailer-promoted government intervention in the payments marketplace. It is time for community bankers to rise up and urge Congress to include a Durbin amendment repeal in the highly anticipated 2017 Financial CHOICE Act, scheduled to be introduced soon by House Financial Services Committee Chairman Jeb Hensarling (R-Texas).
Federal Reserve data show that Durbin price controls have eroded community bank 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.
…And the Durbin Amendment is much more toxic than just topically: “‘(P)assed as part of the Dodd-Frank financial reform legislation in 2010, (it) required the Federal Reserve to limit fees charged to retailers for debit card processing.’ Oh excellent – price controls. Because they always work out SO well: ‘Complex price controls invite gaming of the system….’”
Four years later, the evidence against merchants continues to pile up. Four years of consumer research by Phoenix Marketing International (PMI) has found that consumers continue to say they are not seeing savings.