Resources

The Federal Reserve Bank of Richmond published the report “Debit Card Interchange Fee Regulation:  Some Assessments and Considerations” in the third quarter 2012 issue of Economic Quarterly. The report analyzes the debit card interchange fee regulation introduced by the Durbin amendment and its first-year impact on different players in the debit card market. The report specifically notes the unintended consequences of the Durbin amendment on small-ticket sales and rising bank fees.

Four financial services associations issued a letter to Congress on the eve of the one year anniversary discussing the contents of a new GAO study about the impact of Dodd-Frank. The study shows that for smaller community banks and credit unions, which were supposed to be “exempted” from the fallout of this legislation, interchange revenue dropped by five percent in just the first three months of implementation, and that was before the network exclusivity and routing provisions took effect in April 2012. These provisions require financial institutions to enable their debit cards with two unaffiliated payment card networks which will likely cause even more substantial reductions in interchange fees to exempt issuers.   The GAO further concludes that even more harm to community banks and credit unions is likely as the marketplace evolves.

The survey found that the costs of checking have risen dramatically, with some bank fees rising 25 percent or more. The survey finds that the rise in fees is, in part, a result of recent regulations limiting overdraft fees and capping the cost of debit card interchange fees. According to the survey, only 39 percent of banks offer a checking account with no minimum balance requirement and no monthly checking fee, down from 45 percent in 2011.

The 2011 Debit Issuer Study, commissioned by PULSE, finds that small debit card issuers, including community banks and credit unions, on average expect a 73 percent decrease in debit interchange revenue as a result of pending interchange fee rules. While these issuers with less than $10 billion in assets are exempt from the regulations proposed by the Federal Reserve Board, they are critical of the interchange cap and skeptical that the exemption will be effective.

This study from the Georgia Public Policy Foundation examines the effects of the Dodd-Frank Act on the Georgia economy. Georgia has been disproportionately affected by the financial crisis and this study finds that legislation, including the Durbin amendment, is making it increasingly harder for the economy to rebound.

This report from Moody’s examines the effects of the Durbin amendment on banks and payment processors. The report speculates that Durbin amendment’s reform of debit interchange and routing practices hits banks the hardest and makes payment processing more competitive. Merchant acquirers and retailers are benefiting from the rule changes and there is substantial evidence that they will not pass savings along to consumers. Despite the blow to banks, Moody’s expect them to attempt to offset the lost revenue by raising fees for other products and cutting expenses, though this process will be difficult and the timing is unclear.

The letter, signed by leaders of 18 center-right groups, calls for members Congress to reject price controls on retailers but to support a bipartisan bill to repeal the Durbin price controls on banks and credit unions.

This study has been updated multiple times with new information as the Durbin Amendment made its way through Congress and ultimately took effect on October 1, 2011. On May 1, 2012 the Federal Reserve for the first time announced hard data on the law’s practical effect, and Card Hub’s 2012 Impact Study concluded that the law has ended up costing banks almost $8.4 billion on an annual basis ($8.06 billion for large banks and $329.4 million for small banks).