The Durbin amendment is a federal government price control. It is in clear opposition to conservative policy and ideals.
Expansion of the Durbin amendment to credit cards will significantly harm consumers, community banks, and credit unions.
ATR has produced several publications and documents outlining the harmful effects of the Durbin amendment.
- On May 20, 2021, ATR lead a coalition letter to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services urging lawmakers to oppose further attempts to expand the Durbin amendment to credit cards.
- On August 10, 2021, The Hill published an ATR op-ed highlighting the problems with the Durbin amendment. For example, the op-ed states that “about 22 percent of retailers raised prices on consumers” because of the interchange fee cap. The op-ed also cited a Federal Reserve study that found “the fee cap made banks 35 percent less likely to offer free checking accounts.”
- On August 31, 2021, ATR produced a document outlining several data points as to why the Durbin amendment is bad policy. For example, 82% of households earning less than $20,000 own a rewards card. The loss of credit cards rewards if the Durbin amendment is expanded will harm low-income individuals.
- On October 21, 2021, ATR published a blog post explaining how the Federal Reserve is overstepping its statutory authority in its proposed amendment to Regulation II. It also talks about how retailers “have limited payment options for consumers to cut corners.”
- On February 22, 2022, RealClearMarkets published an ATR op-ed explaining the harm the Durbin amendment causes to banks, credit unions, and consumers. For example, the op-ed discusses how “the International Center for Law and Economics found that since the Federal Reserve implemented the Durbin amendment via Regulation II, low-income consumers were harmed by increased deposit fees.” It also talks about how market forces have kept interchange fees on credit card transactions at constant levels.
ATR’s coalition letter from May 2021 can be read below:
May 20, 2021
Dear Chairman Brown, Ranking Member Toomey, Chairwoman Waters and Ranking Member McHenry,
On behalf of the undersigned organizations representing millions of consumers, we write to express our opposition toward legislative and Federal Reserve efforts that expand the Durbin Amendment routing mandate, both of which would limit competition and choice in the debit and credit card marketplace. Retail trade associations have consistently lobbied for greater intervention from the Federal Reserve, including forcing market participants to allow competitors to free ride on their innovative technology, a clear and uncompensated governmental taking, given the misleading title of “interoperability.” Additionally, the harm demonstrated from the Durbin Amendment is shown in the Federal Reserve’s own data, and we oppose further attempts to expand the Durbin Amendment to credit cards.
As organizations working to advance free-market policies to benefit every part of the American economy, we sympathize with businesses that have struggled due to the COVID-19 pandemic, and support policies to bring them regulatory and tax relief. We object, however, to policy actions proposed in the name of “relief” that benefit some businesses by massively raising costs on other businesses and consumers.
The Durbin Amendment was a last minute provision included in the Dodd-Frank Wall Street Reform and Consumer Protection Act which mandated price controls on interchange fees for transactions using debit cards. Since its passage, retail trade associations and some in Congress have searched for opportunities to expand the Durbin Amendment’s reach to credit cards. Last year, the National Restaurant Association pushed for an unrelated expansion of the Durbin Amendment in any Covid-19 relief bill to cap credit card interchange fees. At the start of this year, Sen. Durbin (D-Ill.) supported antitrust measures to limit competition amongst payment providers and the services they offer.
The expansion of the Durbin Amendment is highly concerning and would directly harm consumers during the check-out process online and in-person. Any Durbin Amendment expansion to credit cards and the costs associated with such a policy will only serve to further limit consumer’s financial choices and could threaten $50 billion in rewards enjoyed by millions of consumers and retailers who use and accept rewards credit cards.
Retailer trade groups have continued to pressure Sen. Durbin and his Democrat colleagues to call for antitrust intervention by the Federal Reserve and Department of Justice to exercise greater control over the routing of transactions. Their calls are concerningly anti-competitive and misguided.
There are currently many options for retailers to choose for the routing of debit card payments. STAR, Accel, and Interac are some of the regional routing networks that retailers may choose to use to route debit card transactions if they do not wish to use debit card firms’ own networks. Retailers, however, have asked for the Federal Reserve to mandate that debit card firms allow the payment infrastructure of their proprietary networks to be used by these regional competitors. This request would allow some routing networks to free ride on the innovation of others while possibly comprising customer’s security at check-out.
Retailers clearly have choices and may also opt to create their own co-branded credit cards that use the payment networks of their choice. To do so, retailers may partner with a bank to issue the credit card, allowing the partnering bank to process the transaction, rather than a specific card network.
In both debit and credit card availability, competition already exists, with consumers continuing to benefit from choice in the marketplace.
Unsatisfied, retail trade groups have now initiated a lawsuit against the Federal Reserve itself for supposedly not instituting a “reasonable and proportional” interchange fee to process a debit card transaction.
Purposefully left out of the retailers’ latest complaint is the retailer’s failure to live up to their promises to reduce the cost of items in exchange for the Durbin Amendment’s addition to Dodd-Frank. The retail groups also omit in their complaint the security protections and innovation interchange fees help facilitate. A 2017 study published by the International Center of Law and Economics found that “the overall adverse effect of the Durbin Amendment on lower-income consumers was approximately $1-3 billion per year.” Interchange fees help fund security technology services, anti-fraud programs, customer service help lines and infrastructure needed by banks to process thousands of transactions a day.
Retail trade associations have proven themselves relentless in their justification of shifting billions of dollars away from consumers and limit choice within the marketplace. Consumers stand to lose the most with further government intervention and can expect to see a loss of rewards points, transaction security, and higher costs at check-out. We, the undersigned organizations, oppose any further intervention in the debit and credit card marketplace and encourage all members of Congress to vote against future expansions of the Durbin Amendment, either by legislation or misguided Federal Reserve policymaking.
President, Americans for Tax Reform
Brent Wm. Gardner
Chief Government Affairs Officer, Americans for Prosperity
Vice President of Public Policy, Americans for Limited Government
Heather R. Higgins
CEO, Independent Women’s Voice
Director, Finance, Insurance and Trade, R Street Institute
President, National Taxpayers Union
Andrew F. Quinlan
President, Center for Freedom and Prosperity
President, American Commitment
Senior Fellow, Competitive Enterprise Institute
Executive Director, USA Workforce
President, Consumer Action for a Strong Economy
President, Center for a Free Economy
President, Frontiers of Freedom
President, Council for Citizens Against Government Waste
Vice President, Heritage Action for America