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Government intervention in the markets while well-meaning often leads to unintended consequences. Flawed policy like the price controls on debit card interchange fees included in the Durbin Amendment to the Dodd-Frank Act was full of promise by merchants to reduce costs for consumers but instead has left them holding the bag at the checkout. Thankfully, the House Financial Services Committee soon has an opportunity to rectify this harmful policy. As the industry’s leading voice representing the retail banking industry, the Consumer Bankers Association (CBA) is dedicated to ensuring that our members, from the largest financial institutions to many regional and mid-size banks, have the opportunity to provide small businesses and consumers with access to important financial services. The Durbin Amendment was written without consideration of the negative impact it would have on these financial services and how it would ultimately harm our customers. Continue Reading
The House Financial Services Committee will mark up Chairman Jeb Hensarling’s (R-Texas) Financial CHOICE Act on Tuesday. One provision of the legislation that we strongly support is repeal of the Durbin Amendment. This amendment, which set price controls on debit interchange fees for some financial institutions, was added to the Dodd Frank Act during conference committee at the behest of big-box retailers. These interests pledged the provision wouldn’t affect “exempt” entities — under the Act, those with holdings less than $10 billion. Continue Reading
WASHINGTON, D.C. (September 12, 2016) – Today, the Electronic Payments Coalition (EPC) sent a letter in support of the Financial CHOICE Act’s repeal of the Durbin Amendment to Chairman Jeb Hensarling, in advance of the House Financial Services Committee meeting to debate H.R. 5983–the Financial CHOICE Act. EPC salutes Chairman Hensarling’s forward-thinking leadership to repeal the failed Durbin Amendment as part of a reform package that aims to, in the words of Chairman Hensarling, “help grow the economy for all Americans, not just those at the top.” “Over the last six years, the Durbin Amendment has severely impacted customers, especially lower income and younger consumers by hitting them twice—first, at the cash register by not getting promised discounts, and then by reducing their access to financial services. The amendment’s artificial price controls led to a $36 billion handout for large retailers, which they have used to pad their bottom lines … Continue reading
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
In his July 27 letter, Sen. Dick Durbin claims that his amendment to the Dodd-Frank Act capping debit-card interchange fees didn’t reduce the prevalence of free-checking products. He states that many credit unions continue to offer free checking, but this is because they are exempt from the Durbin amendment. The same study he cites shows the percentage of free-checking accounts at banks fell from 76% to 38% since the amendment was put in place. Furthermore, as a result of it, minimum-balance requirements and monthly service charges have risen, driving many poor people out of the banking system.
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.
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.
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.