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Amex’s Loss in Court May Not Help Consumers
The evidence for such a pattern is well established: In 2010, Senator Richard J. Durbin, Democrat of Illinois, introduced the Durbin Amendment as part of the Dodd-Frank overhaul of the financial system. The amendment was meant to lower merchant fees for processing debit cards; retailers like Walmart and Home Depot argued that the banks were gouging them, pushing prices up for consumers. So what happened after the legislation was put into effect? “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,” a study by the George Mason University School of Law said. Other academic research has come to the same conclusion.
Regulation is Strangling America: It’s Time for Congress to Act
Congress should repeal the cap on the fees banks can charge on debit cards, under the Durbin Amendment to the Dodd-Frank financial regulation law; this has increased banking fees and added around a million people to the ranks of the “unbanked” since 2010.
On the Third Anniversary of the Durbin Amendment, 94% of Consumers Not Seeing the Savings Retailers Promised Them
WASHINGTON, DC – October 1, 2014, marks the third anniversary of the implementation of the Durbin amendment, a piece of legislation that was masked as reform, but was nothing more than an $8 billion annual windfall for retailers. While retailers promised they would pass along savings to consumers – savings that now amount to over $24 billion for retailers – a new survey shows that 94% of consumers have seen prices that have increased or remained the same over the past three years. This survey, conducted in September 2014 by Phoenix Marketing International and sponsored by the Electronic Payments Coalition, asked 3,400 consumers about price changes they have observed at a variety of retailers. The research shows that 94% of consumers have seen prices increase or remain the same in the 16 individual point-of-sale categories measured in the survey, and a majority of consumers have seen prices increase at pharmacies, … Continue reading
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
Retailers have themselves to thank for lower Christmas sales
According to a study recently released by the Coase-Sandor Institute for Law and Economics, the Durbin Amendment has had a net cost to consumers of between $22 and $25 billion dollars. That’s the value of over ten million Kindle Paper Whites on Amazon.com, two million Play Station 4s, and six million LeapFrog Leap Pads (in case you were wondering). It’s also the total of what consumers will not be able to spend on loved ones and holiday expenses, thanks to increases in payment card costs.
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.
Stopping the Spread of Bad Ideas
The problem arises when politicians intervene to regulate the interchange rates that retail merchants pay. Regulating payment card fees has political appeal to elected officials who are told by retailers who claim to be speaking on behalf of consumers. These merchants tell the political class that if they pay lower, regulated interchange rates, they will pass those savings on to consumers. In country after country, the reality is quite different. Sure enough, retail merchants benefit from the lower fees. But those benefits are passed on to the retail merchants’ shareholders, not to consumers as promised. Consumers end up paying higher fees — either through “checkout fees” (surcharges at the register) or higher banking fees.
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