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Consumers lost billions as a result of Durbin regulation

January 17, 2014 by Terry Dooley — SVP & CIO, ITS, Inc

Economic consulting firm, Global Economics Group, recently released the results of a study exploring the impact of the Durbin Amendment on consumers, retailers, and financial institutions.

According to the study, consumers have lost between $22 billion and $25 billion as a result of Durbin's now-overturned interchange fee cap. Following the cap, the average per-transaction interchange revenue fell from 44 cents to 24 cents.

"We found that banks passed some of the revenue they lost on to consumers, and merchants gave back some of the costs they saved to consumers," said David Evans Global Economic Group's chairman. Adding, "Unfortunately for consumers, they lost overall."

Although the study concluded that merchants did pass on to consumers the "minimal" savings they received as a result of the interchange cap, it wasn't enough to supersede the increases some FIs were forced to instigate to counter lost revenue.

As Evans points out, "The regulations shifted more than $7 billion of money from the annual income of banks to the annual income of merchants. There is no reason to believe that merchants would give this windfall back to consumers or that the banks could absorb the full loss in their profits."

Despite the high cost to consumers, regulators in other countries are amping up their efforts to reduce or cap interchange fees. Mercator Advisory Group's recently released report, Global Regulatory Trends: Interchange Regulation, examines global and European payment card trends and worldwide interchange regulatory developments.

The report looks at the effects of interchange regulation on countries with existing regulation. It cites data from Spain and Australia, both of which have had fee cap regulation in place for a number of years. The data indicates that despite the best intentions of the authorities, regulatory intervention has hurt the payments industry on a number of fronts.

This is also evidenced in a recent Dublin City University study, which concluded that Irish consumers could ultimately pay $144 million in additional card fees if proposed interchange fee caps are put in place across Europe. The effects of the proposed caps on consumers, retailers, and issuers will no doubt be felt differently across the continent. However, it is becoming clear that rather than benefiting from interchange regulation, consumers and other segments of the payments industry are negatively affected.

Read more about regulatory issues.

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