Durbin Impact Feud Continues Unabated
Retail associations are celebrating what they are calling a year since their legislative victory in the battle over the Durbin amendment by asserting that none of amendment opponents' dire predictions have come true.
The Merchant Payments Coalition, an association of retail trade associations formed to force lower debit interchange, pegged the year countdown to the defeat of the Tester amendment, the last major push to delay the implementation of the amendment's interchange cap.
“This week, one year after the defeat of the Tester amendment, the facts are in and the outcome is clear. Despite a flawed Federal Reserve rule, the reforms are working,” the coalition said in a public statement. “Consumers and merchants are feeling relief from Visa and MasterCard’s price fixing, and community banks and credit unions across America are thriving.”
The coalition contended that retail profit margins have fallen since the amendment rule was implemented, indicating that retailers have been passing on the savings from the lower interchange fees to consumers. It also suggested that lower interchange payments have given retailers more financial freedom to experiment with their own rewards and incentives to save consumers money for debit card use, though it did not provide any examples of retailers doing so.
The group also said that checking fees fell after the Durbin regulations were implemented, quoting a May 10 article in USA Today as reason for the assertion.
The coalition also quoted news stories from around the country indicating that community banks and credit unions, whose debit interchange was not capped under the amendment, have benefited from it.
“'Suncoast Schools Federal Credit Union reports an 11% increase in both sales and transactions with debit cards since fourth-quarter 2011 versus 2010,'” the merchants quoted from an article on Credit Unions Online on May 18 of this year, adding from the publication, ‘“We believe bank customers have shopped our competitive pricings and attractive products, and we believe consumers are moving their accounts to Suncoast because we offer totally free checking, no strings attached, plus rewards,’ said Jon Rasmussen, VP/card services.”
The group added other quotes from coverage of credit unions from Massachusetts and Wisconsin.
But the Electronic Payments Coalition, an industry group made up of the major card brands along with card issues, including credit unions, attacked the merchants’ assertions.
“The Durbin amendment was an epic failure,” said the EPC in a statement. “Congress meddled in a battle between two giant industries to pick winners and losers–a battle that ended with an $8 billion windfall to retailers and left consumers holding the bag. Giant retailers promised to lower prices if Congress put these unprecedented price controls on interchange fees. But have you seen lower prices at the register? Have you seen a discount for using your debit card? Retailers broke their promise and are instead pocketing the windfall–and going back for more.”
The EPC also attacked the merchant's assertion that the costs of checking accounts have fallen, pointing to a Bankrate.com study that indicated the opposite has happened.
“Every day that passes brings new headlines of free checking disappearing, minimum balances raising–and debit rewards have gone the way of the free toaster,” the EPC declared. “A recent Bankrate.com study concluded that the availability of free checking declined by 30% since 2010,” the group added.
The EPC also challenged the notion that smaller debit card issuers are doing well under Durbin.
“Smaller credit unions and community banks are also beginning to see their revenues erode from the Durbin amendment,” the EPC complained. “The exemption for smaller financial institutions is only a theoretical fantasy. The Fed’s recent study showed that interchange fees at community banks and credit unions fell by 5% in the first three months after the price caps went into effect. And according to a recent study by CardHub, using the Fed study data, in just the first year, these price caps will cost small institutions over $329.4 million.”
The EPC also pointed out that the Durbin regulations had the unintended consequence of not having an equal impact on all merchants.
“Now, we are seeing that small retailers selling everyday items, like a cup of coffee or a turkey sandwich, are worse off because of the Durbin amendment–while giant retailers are rolling in the dough.,” the EPC said. “Price controls wreak havoc on markets, and now all debit transactions, whether a $3 sandwich or a $3,000 television, are subject to around the same flat 23 to 25 cents per transaction, in stark contrast to the 1% they were paying prior to the Durbin amendment."