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Get ready to say goodbye to your neighborhood credit union! Slowly, but surely regulations imposed by Dodd-Frank are putting credit unions out of business across America. As a result of the Dodd-Frank regulatory burden, U.S. credit unions have seen skyrocketing compliance costs and loss of revenue that are not only hurting credit unions, but also the American consumers that they serve.
Unfortunately, not all credit unions are created equal. Naturally some credit unions have more assets than others, and as a result are able to spread the costs. In fact credit unions with assets under $100 million face a regulatory burden almost 3 times greater than credit unions with over $1 billion in assets. As a result revenue from these institutions are drastically affected by Dodd-Frank regulations like the Durbin amendment. Estimates show that the total impact of these regulations comes in at $1.1 billion in lost revenue in 2014, and that’s just the conservative estimate.
Whole forests have been cut down to print the books written about the financial crisis of 2007/8 and America’s response to it. Far fewer have been written on what’s wrong with the financial system now. Yet there’s a lot wrong with it. Despite historically low interest rates, banks aren’t lending to businesses or individuals, smaller and community banks have had to close or merge, low-income customers have seen free checking accounts disappear and their fees rise. The financial system is dysfunctional and not fit for purpose.
Pass a series of reforms preventing regulatory overreach in financial services. These include:
- Repeal the Durbin Amendment that capped fees related to debit card use, which resulted in banks increasing other fees without the consumer getting any benefit in reduced store prices.
For years the payments industry has been at odds with big-box retail lobbyists over the Durbin amendment — an amendment to the Dodd-Frank bill by Sen. Richard Durbin (D-IL) that sets price controls on debit interchange fees. Why is this debate resurfacing again now? Because after six years, American consumers are waking up and realizing they have been cheated, that the policy is a failure.
Community banks, credit unions, and other financial institutions recognized right away that the Durbin amendment’s price controls would pose a serious problem. But a few members of Congress have taken a bit longer to come around, in part because the technical description of the law makes a good story for merchants. Big-box retailers also have a track record of leaving out key data and speaking for community banks and credit unions — those actually impacted by this harmful regulation.
As the holiday shopping season approaches, people will descend in a frenzy onto retail stores large and small to spend their hard earned money on gifts for their loved ones. And with so many of these folks using credit and debit cards for purchases this is a perfect reminder to retailers that they must do everything in their power to protect customers from credit fraud.
In the years since millions of customers were victims of data breaches at large retailers like Home Depot and Target, banks and credit card companies have taken initiatives to make sure their customers’ information is protected and their money safe. Improved technology like credit card chips have made cards more secure. Banks have fortified their customer databases with stronger firewalls against hackers.
While Election 2016 is in the rearview mirror, our work is not done. We must come together to ensure that we find common ground to build a better nation for everyone, regardless of political affiliation.
One area that we can all agree needs improvement is data security. Of particular concern is the rampant growth of new retail data breaches, which have become all too regular. The nation’s data security standards must be improved to address this trend, and fortunately, we have a great foundation to build upon.
In September, the House Financial Services Committee (HFSC) approved legislation that would repeal a Dodd-Frank provision called the Durbin Amendment that set limits on the fees some banks charge retailers to swipe debit cards.
In a frenzy of Orwellian doublespeak before and after this vote, Durbin Amendment supporters argued the provision is “free market” (it boosts competition!) and consumer friendly (it’s a vital part of U.S. antitrust law!). The majority of the HFSC didn’t fall for it.
WASHINGTON (November 14, 2016) – New survey data released by Morning Consult shows that a majority of consumers support repeal of the merchant markup, also known as the Durbin Amendment of the Dodd-Frank Act.
Retailers have pocketed $36 billion from the Durbin Amendment, turning it into nothing more than a merchant markup that pads retailers’ bottom lines. More than five years later, consumers are saying enough is enough.
More than six in ten consumers think the Durbin Amendment should be repealed if merchants are not passing the savings on to consumers. A study by the Federal Reserve confirms that merchants are not handing over the savings they receive from the Durbin Amendment. Instead they are pocketing six to eight billion dollars every year since the regulation was implemented—all of which should have been passed along to customers in the form of lower prices.
By a two-to-one margin, consumers think interchange fees should be negotiated by merchants and processors, not by the federal government. This same sentiment was even shared by Former Financial Services Committee Chairman Barney Frank when he reflected on the law after it passed, “I’m not a fan of the Durbin amendment. I think that’s not going to help the consumer. That was intervening in a fight between two economic groups that should be left to their own.”
Not only was Barney Frank right in that consumers would be hurt, the Durbin Amendment resulted in negative consequences for community banks, credit unions, and small businesses as well.
The amendment’s price controls have had numerous unintended side effects, contributing to the loss of consumer benefits like free checking, increased costs for smaller community financial institutions, and effectively forcing small retailers to lose important discounts on debit card transactions.
By the same two-to-one margin, consumers think more government regulation will stifle innovation.
Instead of simply pocketing interchange revenue like the big box retailers have done, financial institutions invest in supporting the global payments network and developing innovative security technologies that protect consumers’ sensitive financial information.
“It is clearly time to repeal the Durbin Amendment, which is nothing more than a merchant markup that has served the special interests of big box retailers for far too long,” said Molly Wilkinson, executive director of the Electronic Payments Coalition, “Customers are not benefitting from the price controls on debit interchange transactions and this new data shows consumers support ending this failed policy.”
Legislation to repeal the Durbin Amendment has been introduced by Chairman Jeb Hensarling of the House Financial Services Committee and by Representative Randy Neugebauer.
View EPC’s infographic highlighting survey data.
Morning Consult conducted a national survey of 1,999 registered voters from October 13-15, 2016. Results from the survey have a margin of error of plus or minus two percentage points.
New survey data released by Morning Consult shows that a majority of consumers support repeal of the merchant markup, also known as the Durbin Amendment of the Dodd-Frank Act. The below infographic highlights the poll findings. For additional information, see EPC’s press release on the polling.
EPC Calls for Durbin Amendment Repeal and Better Security Standards: Support H.R. 5465, H.R. 5983 and H.R. 2205 to Protect Consumers
WASHINGTON (September 30, 2016) – Five years since the implementation of the ill-conceived Durbin Amendment, customers are still not seeing savings at the register and small businesses continue to feel the impacts of this legislation. Ahead of the October 1st anniversary of Durbin Amendment implementation, the Electronic Payments Coalition calls on legislators to continue their support of repeal by backing H.R. 5465 and section 335 of H.R. 5983.
The Durbin Amendment continues to be nothing more than a merchant markup allowing big box retailers to pocket more than $36 billion to date—impairing small mom and pop stores and hurting customers in the process.
“The numbers don’t lie: the Durbin Amendment has been a complete failure for everyone except the big-box stores, who have padded their bottom lines to the tune of six to eight billion dollars each year,” said Molly Wilkinson, executive director of the Electronic Payments Coalition. “Once consumers find out retailers aren’t keeping their word and passing on savings through lower prices, a majority of consumers support repealing the Durbin Amendment, making it imperative Congress supports efforts to end this amendment.”
Independent data demonstrates this legislation also harms community banks and credit unions. These small financial institutions, which provide small business support and growth opportunities in communities across America, face higher costs to comply with all of the unnecessary provisions of the amendment and have seen a substantial drop in interchange revenue because of the Durbin Amendment.
But consumers aren’t just impacted by big box retailers’ anti-free market ploy—they are also hurting from retailers’ failure to implement strong data security standards that would better safeguard customers’ personal and financial data.
“Banks and financial institutions comply with the requirements of the Gramm-Leach-Bliley Act (GLBA) because they are vested in protecting their customers’ information and helping financial breaches to decline. The same effort should be required of others that handle sensitive customer data,” said Wilkinson. “As the number of retail breaches continues to grow, there needs to be similar standards on the retail side. Collaboration is key to best protecting consumers.”
In fact, innovation in the payments and security space is a key priority for financial institutions, especially as consumers overwhelmingly rely on these entities to advance the future of payments. Just six percent of consumers trust stores and retailers, but the majority — three in four consumers — trust banks, credit card companies, and other financial institutions to develop new payment technologies.
These innovative efforts seen over the past year enabled the necessary strides to equip Americans with EMV chip cards and certify merchants to accept these cards.
For those who have upgraded, EMV chip cards have already translated into a decline in counterfeit fraud–benefitting customers, merchants, and financial institutions.
Because chip cards have been successful in better protecting card data, criminal activity is shifting to other types of fraud, such as malware and card-not-present fraud. This is leading to a “record setting pace” of breaches, surpassing 2015’s high numbers, according to the Identity Theft Resource Center.
“Given the numerous recent big-box retailer data breaches, the Data Security Act of 2015 (H.R. 2205) provides common sense standards that protect consumer information when in the hands of retailers now more than ever,” said Molly Wilkinson, “Unfortunately, retailers aren’t in favor of these standards and have resorted to making claims about the bill that are simply untrue. If retailers were accountable for implementing these measures, it’s likely many of the recent high-profile data breaches could have been prevented.”
EPC calls for strong national data security standards to better protect their customers’ sensitive information. H.R. 2205, the Data Security Act of 2015, would hold retailers to similar standards as financial institutions, which 90 percent of consumers support, and EPC urges Congress to pass the legislation.
To learn more, visit http://www.electronicpaymentscoalition.org/. The Electronic Payments Coalition has compiled a list of recent breaches impacting consumers which can be viewed at: http://www.electronicpaymentscoalition.org/resource/technology-mandates-dont-work-incidences-of-fraud/.