Durbin Amendment’s Disparate Impact on Low-Income Consumers

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Posted by Justin Sykes on Friday, April 28th, 2017, 8:51 AM PERMALINK

When the Durbin Amendment was passed as part of the Dodd-Frank Act of 2010, proponents billed the Durbin Amendment as a measure that would benefit America’s financial consumers. By instituting the anti-free market policy of price caps on debit card swipe fees, Durbin proponents promised savings by merchants would be passed onto consumers in the form of reduced prices in stores. Yet not only has this promise not come to fruition, the Durbin Amendment has now been shown to have had a disparate impact on America’s low-income financial consumers.

According to a study by the Federal Reserve Bank of Richmond, since enactment of the Durbin Amendment 75 percent of merchants surveyed in the study reported no reduction in prices and 23 percent of merchants actually increased prices since enactment.

Not only did Durbin fail to deliver relief to consumers in the form of lower prices, but as a result of Durbin price caps and other Dodd-Frank regulations, the amount of banks offering free checking accounts dropped dramatically. Banks also increased average minimum deposits, monthly checking account maintenance fees, and many eliminated debit card reward programs.

The cumulative impact of reduced access to traditional banking services resulting from Durbin and Dodd-Frank was that many low-income financial consumers were pushed out of the traditional banking system. A recent study by George Mason University found the impact of the Durbin Amendment has led over 1 million Americans being “unbanked.”

This is a direct result of Durbin’s impact on banks offering free checking accounts. In 2009 75 percent of banks offered free checking accounts. After Durbin was enacted in 2010, that number dropped to 45 percent the following year, and has now fallen to less than 40 percent today. 

Banks are estimated to have recouped approximately 30 percent of their annual revenue loss cause by the Durbin Amendment through higher bank fees, and this impact has played out in truly regressive fashion. According to an April 2017 study by the International Center for Law and Economics, in 1999 the average minimum deposit required in order to avoid fees on non-interest-bearing accounts was $562.27. That minimum fell to $109.28 in 2008, but after Durbin passed the minimum skyrocketed to $732.02 in 2012 and stands at $670.74 as of 2016.

Furthermore, before Durbin average monthly checking account maintenance fees were $5.90 in 2009, yet fees have now climbed to all time highs of $13.25. Debit card rewards programs have also been reduced, seeing a massive 30 percent drop in the availability of debit card rewards programs in the first year Durbin became effective.

While high-income households are able to absorb the impact of reduced free checking, increased minimum balance requirements, and other increases in fees resulting from Durbin, the effect on low-income households has been quite different. Since enactment of Durbin debit card adoption for lower-income households (less than $25,000 per year) has fallen by roughly 10 percentage points relative to households earning between $50,000 and $75,000 annually. 

For America’s low-income financial consumers, higher minimum requirements, the absolute destruction of free checking accounts, and increased maintenance fees means extremely reduced access too much needed traditional banking services for those who need it most. Instead of helping America’s consumers the Durbin Amendment has instead failed to pass on cost savings and increased the number of unbanked Americans. Such impacts fall hardest on the nation’s most vulnerable.

The 115th Congress should make 2017 the year that lawmakers stand up and protect American financial consumers, especially those of limited means, and repeal the failed and anti-free market price caps of the Durbin Amendment. 

 

Photo credit: Paul G. 

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