Americans for Tax Reform President Grover Norquist sent a letter to Senator Patrick Toomey (R-Pa.) and Representative Patrick McHenry (R-N.C.) expressing concern regarding attempts by retail merchants to expand the Durbin Amendment during the 117th Congress. The letter urges Congress to anticipate further attempts to expand the Durbin Amendment’s price controls on interchange fees mandate to credit cards, as the Amendment has already done so for debit cards.
The Durbin Amendment, an eleventh-hour addition added to the Dodd-Frank Wallstreet Reform and Consumer Protection Act, installed routing mandates and instructed the Federal Reserve to place a cap on debit card interchange fees. Interchange fees are charged at the point of sale by banks and credit unions on debit and credit card transactions. These fees help banks fund software and hardware systems, continued innovation within the marketplace that ensures secure transactions and protect customers from card fraud.
The merchants and retailers that supported the Durbin Amendment promised that savings would be passed on to consumers. However, studies conducted by academics and the Federal Reserve have shown that the Durbin Amendment failed to deliver tangible cost savings to consumers. Meanwhile, a 2017 report published by the International Center for Law and Economics found that large retailers saved approximately $40 billion in interchange fees.
The loss in interchange fee revenues has resulted in higher consumer banking costs. According to the Boston Federal Reserve, the Durbin Amendment has cost large banks nearly “$14 billion a year or more than 5 percent of core total noninterest income.” To recover lost revenue, the banking sector installed higher overdraft fees, increased minimum balances, reduced access to free checking, canceled debit card rewards programs, and charged higher monthly account maintenance fees. As a result, millions of households have been harmed in aggregate by the Amendment. The adverse effects of these policies have fallen disproportionately on the poor. Hundreds of thousands of low-income households failed to receive lower retail prices and were forced to exit a more costly banking system.
In March of last year, COVID-19 relief legislation was used as justification for the National Restaurant Association to push for an unrelated expansion of the Durbin Amendment to cap credit card interchange fees. ATR is now concerned that the retail lobby will use upcoming anti-trust complaints as another basis to unreasonably expand the Durbin amendment. The retail industry has proven to be relentless at searching for any justification to shift billions of dollars away from the consumer.
In their efforts to expand the Durbin Amendment, retailers will continue to promise savings to the consumer that they have no intention of fulfilling. The retail industry has demonstrated that it will shamelessly ride the coattails of any weekly crisis to push this issue. It will use any must-pass emergency bill to attach legislation to expand the Durbin Amendment.
The retail industry’s goal of expanding the Durbin Amendment will adversely affect the 70% of Americans who own at least one credit card. Since the rollback of debit card benefits post-Durbin Amendment, credit card usage has trended upwards. Credit cards are now the preferred consumer payment method, overtaking debit cards in the last decade and consumer greatly value the rewards offered with their usage. Credit cards continue to increase in popularity because they offer tangible benefits to consumers. The most popular credit cards, such as Chase Sapphire Reserve, the Costco Anywhere Visa Card, and the Southwest Rapid Rewards card line, have become staples in Americans’ wallets. These cards have become household names because of their generous rewards programs that offer substantial benefits to consumers in the form cashback, store-specific discounts, redeemable rewards points, and travel perks. If credit card providers are not able to price interchange fees competitively and fairly, credit card rewards will get rolled back and consumers will be left paying higher annual fees without any guarantee of offsetting cost savings from retailers.
During the 117th Congress, Congress must remain vigilant and skeptical of the retail industry’s promises. Congress should continue to oppose the costly and ineffective expansion of the Durbin Amendment mandate to credit cards.
Click here to see the full letter.