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.
Passed as part of the Dodd-Frank Act, the Durbin Amendment allows the government to set price controls on fees for debit card transactions. Before the Durbin Amendment, such fees were not capped, and issuers of debit cards, such as credit unions and banks, were encouraged by a competitive market to offer consumers benefits like reward programs and free checking accounts. Those days quickly faded as the days of Durbin ushered in a darker day for the consumer.
The Durbin Amendment must be repealed so that the consumers can once again enjoy the benefits of the free market.
Here are the top 5 reasons Durbin is failed policy and must be repealed.
Credit Union National Association | January 26, 2017
As CUNA’s bipartisan, pro-consumer Campaign for Common-Sense Regulation gets underway, CUNA and state leagues are taking to publications across the country to highlight the number of ways credit unions are fighting to better serve consumers. League efforts in Massachusetts, New Jersey and Ohio have led to recent articles on how credit unions can better serve consumers through regulatory relief.
This month, a new Congress is being sworn in and a new president will be inaugurated. As with any turnover in Washington, D.C., there will be new ideas and policy shifts, but this transition from one administration to another doesn’t have to be acrimonious.
As Republicans and Democrats come together to strengthen our nation’s economy and fix broken policies, they should look no further than repealing the so-called Durbin Amendment to the Consumer Financial Protection Act of 2010. This ill-conceived provision to regulate debit-interchange fees has led to negative consequences for consumers, low- to moderate-income bank customers and small community financial institutions. It has strong bipartisan opposition in both houses of Congress.
President-elect Donald Trump is President-elect Donald Trump – because he incepted and led much more than a simple political campaign. As he oft said at his massive rallies: “This is not just crowds gathered – this is a movement.”
What it was and is – is a revolution. A Reality Revolution. For decades and decades in Washington, D.C., members of both political Parties have time and again thrown at us the Groucho Marx quote: “Who are you going to believe, me or your lying eyes?”
Retailers have used “bait and switch” deceptive advertising tactics for decades. The old trick was to advertise sales on their merchandise supposedly with sharp markdowns. But once you came into the store looking to buy merchandise at the advertised sale price, you would be told that the advertised sale items were all sold out. The store’s sales force would be trained, however, to try to switch you to buy some other merchandise which was supposedly “on sale” for a good price.
That was controlled by “consumer” regulation making such “bait and switch” advertising illegal. That regulation required the store to sell you the advertised merchandise at the advertised sale price once the store was able to restock the advertised merchandise.
As Rahm Emanuel once said said, “You never let a serious crisis go to waste.”
Fellow Illinois politician Senator Dick Durbin put that philosophy into practice during the writing of the Dodd-Frank Act, the monstrous piece of legislation falsely sold to the public as a solution to the financial crisis. Not only did Dodd-Frank not fix the problem of “too big to fail” (it made it worse), but by the time it made its way to President Obama’s desk it became filled with provisions that had nothing remotely to do with the crisis in the first place.
One such provision was the Durbin Amendment, which capped the price banks can charge retailers for making credit and debit card transactions. Prior to the amendment, financial institutions would charge various rates, largely dependent upon the size of the purchase. A card transaction on a $2 cup of coffee may cost a couple of pennies, while a $1000 laptop may cost a little over a dollar. A Fed study found that banks on average charged 1.15% per transaction.
Section 1075 of the Dodd–Frank Wall Street Reform and Consumer Protection Act, known as the Durbin Amendment, requires the Federal Reserve Board of Governors to cap the debit card interchange fees that large banks charge. These fees, charged to merchants every time consumers swipe their debit cards, have long been a source of controversy. Since the 1980s, as the volume of card transactions increased, retailers have complained that the fees are too high because large banks and card network companies collude to fix prices. Retailers are currently engaged in an antitrust class action lawsuit over credit card interchange fees, and it is likely a similar suit would have been filed over debit card interchange fees had the Durbin Amendment not been enacted.
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.