It is time to abolish the Durbin Amendment

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. 

{mosads}Let’s take a closer look at these problematic issues caused by the Durbin Amendment.  Merchants promised to pass to consumers billions of dollars in savings from this government price-fixing scheme in the form of lower prices at the checkout.  Unfortunately, the data shows consumers are left out in the cold.  A Federal Reserve Bank of Richmond study found more than 75 percent of merchants surveyed did not change their prices and nearly 25 percent of merchants actually increased prices since the Durbin Amendment took effect.  In fact, four years of consumer research by Phoenix Marketing International (PMI) also determined consumers have not seen the promised savings at the checkout.

Instead, the revenue realized from this flawed legislation is going right back to the retailers’ coffers and is never seen by hardworking Americans as promised.  In fact, the merchants, many of them big box retailers, have been receiving up to $8 billion dollars every year since the bill’s enactment.  That now totals more than $36 billion according to the federal government.  This amounts to more than a drop in the bucket for individual retailers.  In fact, Home Depot thought the expected profits from the Durbin Amendment was significant enough to mention in one of its earnings calls.

The Durbin Amendment’s government mandated price controls also has reduced access to low-cost banking solutions previously offered by CBA member banks and enjoyed by our customers.  Studies conducted by Todd Zywicki, GMU Foundation Professor of Law at George Mason University School of Law and Megan Milloy, Director of Financial Services Policy at the American Action Forum, show the Durbin Amendment has resulted in a decrease in the availability of free checking accounts, higher checking account fees, higher minimum balance requirements and the elimination of debit rewards.

Lower-income consumers are particularly hard hit by this flawed policy.  According to additional studies by Zywicki, millions of lower-income Americans are either now “unbanked” or “underbanked” because of the Durbin Amendment, which in turn has forced them to use high-cost services from payday lenders, check cashiers and pawn shops.  The net result of the Durbin amendment, Zywicki estimates, will ultimately be a transfer of roughly $1 billion to $3 billion each year from low-income households to large retailers.  This means the pocketbooks of lower-income consumers are hit twice – first, by not seeing any of the savings that were promised to them in the form of lower prices and second, by higher cost financing solutions – all to the benefit of large retailers.

Fortunately, solutions are being offered in Congress that merit serious attention.  I applaud House Financial Services Committee Chairman Jeb Hensarling (R-Texas) for his Financial Choice Act, slated for consideration this week.  The bill would boost the economy and help to eliminate government intrusion in the market by repealing the Durbin Amendment.  Ending this flawed policy would enable greater competition in the marketplace, and allow financial institutions to offer low-cost banking solutions to consumers.  Now is the chance for members of the committee to join in support of consumers and vote in favor of Durbin Amendment repeal.

Stand-alone legislation, H.R. 5465, offered by the Chairman of the Subcommittee on Financial Institutions and Consumer Credit, Rep. Randy Neugebauer (R-Texas), would also repeal the harmful Durbin Amendment and deserves praise.

Lawmakers supporting repeal have the public on their side.  A majority of Americans asked said they support repealing the Durbin Amendment upon learning merchants are not passing along the savings promised to customers according to a recent poll conducted by Morning Consult.  The same poll reported that 94 percent of consumers do not feel they have received a discount from retailers since the bill passed.

It is time to abolish the Durbin Amendment.  The government must end its interference in the marketplace on debit card interchange fees, which has negatively affected consumers and hurt the ability of our financial institutions to serve them.   

Richard Hunt is president and CEO of the Consumer Bankers Association (CBA) the trade association for today’s leaders in retail banking – banking services geared toward consumers and small businesses.  The nation’s largest financial institutions, as well as many regional banks, are CBA corporate members, collectively holding two-thirds of the industry’s total assets. Follow him on Twitter at @cajunbanker.