In the 11th hour as Democrats were pushing through the costly and highly controversial Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), they added one additional amendment, referred to as the “Durbin Amendment”. In the massive 848-page piece of legislation that Dodd-Frank became, the 7 pages that make up the amendment are hardly noticeable and can at first be construed as irrelevant. However, this single amendment has resulted in untold costs incurred by Americans every day. 

Democrats tried to sell the Durbin Amendment as a consumer and merchant friendly addition to Dodd-Frank that would save consumers millions of dollars. Before the passage of Dodd-Frank, whenever a consumer used a debit card, the issuer of the debit card received a fee from the merchant to offset the cost of running the debit card system. In this free market system, the market set the price of accepting debit cards.

However with passage of Dodd-Frank and the Durbin Amendment, the Federal Reserve was required to limit fees charged to retailers for debit card processing. This gave the Federal Reserve, an organization whose purpose has nothing to do with debit card processing fees, a legal requirement to fix prices.

It should come as no surprise that this legislation has had the complete opposite effect. This price fixing that the Federal Reserve has been engaged in has led to the rising cost of accepting debit cards for many small business, which are then passed onto consumers.

Even community banks, which were supposedly “exempt”, have faced higher compliance costs thanks to this legislation. According to a survey study taken shortly after the implementation of the law a large number of firms have had to raise prices or debit restrictions and the survey revealed that less than 10 percent of merchants have seen a decrease in debit costs overall.

Like all of Dodd-Frank, the Durbin Amendment has failed to live up to what Democrats promised, and has done American consumers more harm than good. There has to be a better way, and fortunately for the American people there is. Earlier this year Representative Randy Neugebauer (R-Texas) led the way by introducing H.R. 5465, a bill that seeks to fully repeal the Durbin Amendment, a crucial first step to finally helping American consumers bombarded by high fees.

Only a few weeks ago, the House Financial Services Committee approved H.R. 5983, the Financial CHOICE Act, to be considered by the House of Representatives. This piece of legislation introduced by the Chairman of the Financial Services Committee, Representative Jeb Hensarling (R-Texas), builds off of the work of Representative Neugebauer and not only repeals the Durbin Amendment, but also much of Dodd-Frank.

This year Dodd-Frank celebrated its 6 year anniversary. It is safe to say that this legislation has been a complete failure. It has done nothing to promote financial stability and instead of helping American consumers, it has hurt them. Fortunately, thanks to the work of the House Financial Services Committee there is a better way for the American people.  


Photo Credit: Sean MacEntee