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Capping interchange fees has been tried in some countries around the world. Despite claims that these efforts were for the benefit of consumers, the real world results have shown the opposite to be true. In every instance, consumers faced higher fees for banking services, a reduction in benefits and services and saw no return in the form of lower prices from merchants despite promises by merchants and policy makers to pass savings to consumers.
The more things change, the more they stay the same. The National Association of Convenience Stores’ latest op-ed on debit-card interchange fees is the most recent in the organization’s years-long effort to obtain government-mandated price controls. But such controls would only increase large retailers’ profits. Consider the facts. The new Richmond Federal Reserve study finds that of the retailers that have experienced interchange reductions, few reduced the prices of their products and passed the savings on to consumers. Clearly, price caps have thus far failed to help customers at the cash register. Consumers have also paid an additional price as a result of price controls. The Durbin Amendment has made it much more difficult for banks to offer free or low-cost checking accounts. Many banks previously depended on interchange revenue to support these types of accounts, which otherwise lose money for most institutions. When that revenue was cut, it became … Continue reading
It is sometimes said that the definition of a true compromise is one in which neither party is really happy about the end result. If you accept that definition, perhaps the Durbin Amendment represents the ultimate compromise. The Durbin Amendment, a last-minute provision of Dodd-Frank Act, put a cap on the fees banks over $10 billion in assets could collect on debit card transactions – or rather, it directed the Federal Reserve to regulate that matter. But the cap on interchange fees was supposed to make up for it, at least to consumers, by enabling merchants to lower their prices because they would save a bundle on swipe fees. Not so much. According to a recent study out of the Federal Reserve Bank of Richmond, the Durbin Amendment resulted in neither cost savings to consumers, nor (interestingly enough) savings to merchants. “We were saying this back when this was first … Continue reading
Consumers and businesses, especially small businesses, benefit when competition and consumer choice decides winners and losers in the marketplace, not politicians. It is time to put the endless interchange litigation and ancillary political efforts to rest
As I see it, this settlement resolves all interchange disputes – both those in the past and on a go-forward basis. Those who signed the final agreement are now compelled, through their signatures, to ask for the judge to approve it. Now that both industries have willingly endorsed this agreement, it shows that no further government intervention is necessary – the case is in fact closed.
Price controls from Dodd-Frank’s Durbin Amendment that cap the fees paid for debit card transactions are harming the ability of Georgia’s banks and credit unions to lend to businesses and consumers, according to a new study by the Competitive Enterprise Institute for the Georgia Public Policy Foundation.
So the Durbin Amendment capped interchange rate for Debit Cards. There isn’t a consumer in the U.S. who has seen any impact on retail prices, as the retail lobby promised.
The Durbin Amendment began with the best of intentions: it would take an overinflated charge that disproportionately impacts the poor and small businesses, and rein it in to reasonable levels. However, its end effect was to worsen conditions for both groups.
Despite not being legally mandated to charge less for debit card payment processing, average small-bank interchange fees fell 4.4 percent. Apparently, the downward pressure placed on large-bank fees swept those charged by small banks down right along with them.
Retailers may be minimizing the savings in the hope of not attracting too much attention, which could lead to pressure on them to lower their prices.