News

The Durbin Amendment: 1 year later

October 1, 2012

A year to the day after the implementation of the Durbin Amendment to the Dodd-Frank Wallstreet Reform Act, the loser from the fee-regulating legislation appears to be the consumer, one financial industry commentator has said.

In a blog at OpenMarket.org marking the anniversary of the Durbin Amendment, Senior Fellow for Finance and Access to Capital at the Competitive Enterprise Institute John Berlau asserted that legislation intended to help consumers actually had the opposite effect.

Faced with new limits on debit card swipe fees, banks eliminated fee-free checking accounts and implemented new revenue-raising schemes — including higher ATM fees — to make up the difference.

Meanwhile, Berlau said, consumers have yet to see a reduction in prices at the POS.

"Now if these same retailers [who lobbied for the Durbin Amendment] have their way — and a similar price control scheme is pushed through for credit cards as well as debit cards — consumers could also be hit with annual fees on their credit card and fewer credit card rewards as well," he said.

Berlau went on to quote from a paper he co-published by the Competitive Enterprise Institute and the Georgia Public Policy Foundation: 

To economic observers, one of the most disturbing aspects of the Durbin Amendment is that it appears to require pricing below cost. In contrast even to statutes setting rates for utilities or so-called natural monopolies — which payment card networks are not, as there are many competing payment options -- the Durbin Amendment does not even allow banks and credit unions to reap a profitable "rate of return."

Rather, the statute says that banks and credit unions may not even cover the costs of the technology associated with the card network infrastructure, only the "incremental costs' per transaction. Imagine if 7-Eleven Corp., one of the retailers that lobbied hard for the Durbin Amendment, were slapped with price controls on Slurpees that allowed it to cover the costs of sugar and water but not of the Slurpee machine. The firm would rightly scream about big-government interference then make up the costs through higher prices on other products or service cuts.

Berlau urged consumers to push for repeal of the Durbin Amendment through bills such as the bipartisan Consumer Debit Card Protection Act (HR 3156), sponsored by Reps. Jason Chaffetz, R-Utah, and Bill Owens, D-N.Y.

For more on this topic, visit the regulatory issues research center.