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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).
The Federal Reserve’s debit interchange fee cap, which went into effect on Oct. 1, may cost the banking industry $8 billion annually. The top 10 U.S. banks say they intend to recoup about 50 percent of that lost revenue by driving customers to new products, growing their customer bases and removing reward programs. They may also add new fees, though most of the large banks have discarded plans to charge for debit card usage.
This press release from the ICBA discusses the potentially damaging effects of the Durbin amendment on community banks and consumers.
The National Association of State Credit Union Supervisors wrote Congress urging it to consider the potential safety and soundness implications as well as the economic impact of the Durbin amendment as well as the potentially harmful effect upon small financial institutions.
Recent security breaches at big box stores like Michael’s are something credit unions are currently combating. They are helping consumers and ensuring the smooth process of payment services. However, the Durbin amendment threatens these smaller financial institutions and makes all interchange more costly, limiting services and harming the consumer.
CUNA argues that due to debit interchange regulation, credit unions across the country will be forced to bear even more of the cost of merchant data breaches while the merchants responsible for the breaches not only continue to escape responsibility for their data breaches but also received a windfall thanks to government price controls.
On the eve of implementation, Fed Chairman Bernanke and FDIC Chairman Bair expressed concern that debit card rule exemption for small financial institutions wouldn’t work.
Written statement of the Electronic Payments Coalition submitted to the House Financial Services Committee Subcommittee on Financial Institutions and Consumer Credit on “Understanding the Federal Reserve’s Proposed Rule on Interchange Fees: Implications and Consequences of the Durbin Amendment.”