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At Walgreen, Renouncing Corporate Citizenship
In 2010, he introduced as part of the Dodd-Frank Act the so-called Durbin Amendment — which some people called the Walgreen’s Amendment — limiting the fees that banks are allowed to charge merchants for debit card transactions. In seeking support on the floor of the Senate, Mr. Durbin told his colleagues that the Walgreen chief had contacted him. “And he told me that when they look at the expenses of Walgreen’s,” Mr. Durbin said, “it turns out the fees that Walgreen’s pays to credit card companies is the fourth-largest item of cost for their business.” Given all of the benefits Walgreen has received over the years as a United States corporate citizen, it remains curious why Mr. Wasson would seek a new passport.
The consequences of the Durbin Amendment for American consumers
Most large retailers have seen significant cost reductions as a result of the Durbin Amendment, yet to date there is no evidence that those cost savings have been passed-through to consumers.
Dodd-Frank’s Durbin Amendment Drives Up Costs on Memorial Day and Every Day
Over the Memorial Day weekend, the Big Retail lobby created a dubious driving distraction. The Merchants Payments Coalition, whose members include retail giants like Walmart and 7-Eleven, took out a Business Wire press release warning motorists to “Get Ready to Be Side-Swiped by Your Bank’s Exorbitant Credit-Card Fees.” In reality, it’s rent-seeking retailers and allied politicians who are rear-ending American consumers on Memorial Day and every day through the price controls they pushed for in Dodd-Frank’s Durbin Amendment. Now, they are lobbying Washington to ram ordinary folks even more with policies that will make security breaches like that of Target more likely to happen. At issue are “interchange fees,” fees charged to merchants by credit and debit-card issuing banks and credit unions to process consumer transactions. Together with consumer payments, these fees finance the electronic payment infrastructure and technologies to fend of security threats. But ever since the Dodd-Frank financial … Continue reading
Appeals court upholds Fed’s debit card fee limits
A U.S. appeals court upheld the Federal Reserve’s controversial rules for debit card “swipe fees” on Friday, disappointing merchants who had argued the charges were too high. Businesses pay the fees to banks when customers use debit cards to purchase goods or services. The fees reimburse banks for costs involved in offering debit cards. At the instruction of Congress, the Fed in 2011 limited the fees to 21 cents per transaction. A U.S. district court in July 2013 agreed with a group of retailers that lawmakers intended the cap to be lower and overturned the Fed’s rule. The three-member panel of the U.S. Court of Appeals for the District of Columbia Circuit sided with the Fed on Friday, saying the law’s “ambiguity” gave regulators leeway to set a higher fee cap. “Because neither agencies nor courts have authority to disregard the demands of even poorly drafted legislation, we must do … Continue reading
Judge Approves Huge Swipe-Fee Settlement
A federal judge approved the multibillion-dollar settlement of a lawsuit over credit card swipe fees, resolving an eight-year battle between banks and retailers. In a 55-page ruling, U.S. District Judge John Gleeson says the settlement will have a positive effect on competition. He was also sharply critical of the tactics and arguments made by many of the nation’s largest retailers, which tried to torpedo the deal. “The vitriol and poor behavior and feigned hysteria mask complex and difficult issues on which reasonable merchants can and do disagree,” Gleeson writes.
Visa, MasterCard $5.7 Billion Swipe Fee Accord Approved
Visa Inc. (V) and MasterCard Inc. (MA) won approval for a $5.7 billion settlement that ended years of litigation with U.S. merchants over allegations that credit-card swipe fees are improperly fixed. U.S. District Judge John Gleeson said that he was satisfied with the settlement, which was estimated to be the largest-ever U.S. antitrust accord.
Credit card swipe fee settlement gains approval
Visa and MasterCard won a years-long court battle on Friday with the approval of a $5.7 billion settlement over credit card swipe fees.
Retailers Only Sell Half a Loaf in their Analysis of the Costs of Interchange Fees
Open Market published a blog post which points out the flaws of the Robert Shapiro study on the cost of interchange fees. The author writes that the study “ignores half of the equation – the increased costs to bank card users from banks needing to make up a sudden shortfall in revenue as a result of this regulation.” Additionally, the piece highlights the Evans et al. study which finds that some savings to merchants were passed on to the consumer, but those savings were more than wiped out by the increased banking fees and the loss of reward programs.
We Didn’t Regulate Credit Cards, We Regulated People
I described the effects of the Durbin Amendment to the 2010 Dodd-Frank Act in addition to a general overview of why current levels of regulation hurt the economy. The Amendment gave the Federal Reserve the power to limit interchange fees, which they did at around 24c per transaction for “non-exempt” issuers. When the Durbin Amendment was first mooted, based on the Australian experiences, we predicted that none of the savings to merchants would be passed on to consumers and that it would bring an end to credit card rewards programs and free debit cards. Now, thanks to a study by David Evans et al. of the University of Chicago Coase-Sandor Institute, we know that that did happen, and that consumers are worse off to the tune of around $200 per household.
The Not-So-Friendly Sen. Dick Durbin Amendment
Price controls are never a good idea, yet they seem to be a staple of policymakers across the globe. Inevitably, they result in dislocations in the market that frustrate both consumers and producers. If prices are too low, shortages emerge leaving consumers in the cold and producers disinterested in serving that market. High prices create gluts, as unwanted goods sit on the shelves while producers are enticed to produce even more. So it should be no surprise that Sen. Dick Durbin’s (D-Ill.) attempt to control fees on debit cards has done little to help consumers, while the retailers who lobbied for the law are quietly pocketing billions. One study found that the Durbin Amendment transferred more than $8 billion from banks to retailers.
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