Oppose Extension of Durbin Amendment to Credit Cards

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Posted by Bryan Bashur on Tuesday, August 31st, 2021, 1:14 PM PERMALINK

Ask yourself this: should the federal government intervene in negotiations between private parties? If you say no, then you should oppose the Durbin amendment and any extension of it to credit cards. That is exactly what it is, encroachment of the federal government into private business.

The Durbin amendment is not conservative policy.

Urge your senators to oppose any extension of the Durbin Amendment to credit cards.

What is the Durbin Amendment?

  • The Durbin Amendment was signed into law in 2010 as a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
  • The Durbin Amendment is federal intervention at its worst. It sets a federally mandated cap on debit card interchange fees. The fee is a small percentage of a merchant’s sale delivered to customers’ banks for the service of a quick, secure, and reliable payment transaction network and providing the bank accounts that enable payments.
    • These fees are paid to banks and credit unions to ensure that checking accounts are free, the payment infrastructure is secure, and consumers have access to rewards programs.

 

Why is the Durbin amendment bad policy?

  • Ostensibly, the goal of the Durbin Amendment was to reduce costs for merchants and pass those savings onto consumers. However, this has not happened.
    • Consumers have not benefited under the Durbin amendment
    • Only 1% of merchants have lowered prices
    • 22% of merchants increased prices
    • 77% of merchants did not change prices
  • Interchange fee revenue for community banks and credit unions has declined
    • Although the Durbin amendment was supposed to have no effect on banks and credit unions with less than $10 billion in assets, this is simply not the case. In fact, the fee cap is harming small community banks and credit unions. Data from the Federal Reserve shows that community banks and credit unions have lost interchange fee revenue since the implementation of the fee cap. Small community banks have seen interchange fees decline by over 20 percent from 2011 to 2019.
    • This loss of revenue results in tightening of credit and thus making it less likely these banks and credit unions will offer loans. Community banks are a vital lifeline for small business capital in the United States.
    • Credit unions also lose under the Durbin amendment. According to a 2017 report published by the Credit Union National Association, credit unions lost more than $6.1 billion because of burdensome fee caps. Just like community banks, this is an effective method for eliminating all lines of credit and ensuring that small businesses have no way to sustain themselves.
  • Credit card rewards programs will disappear if the Durbin amendment is applied to credit cards
    • Because of the Durbin amendment, rewards programs for debit cards are virtually nonexistent.
    • Rewards cards co-branded with merchants will disappear.
    • The same will certainly happen if it is applied to credit cards, which some lawmakers are discussing
    • This is important because 60% of adults have rewards cards. Additionally, 77% of lower-income individuals have rewards cards.
    • Merchants make more sales with rewards cards. For example, average monthly spending on a rewards account was 43% higher than average spending on a non-rewards account.
    • 82% of households earning less than $20,000 own a rewards card – they are not for rich people. Reverse Robin Hood is not a real phenomenon.
    • Without interchange fee revenue, banks and payment card networks are not able to continue rewards programs
    • The loss of credit card rewards will harm low-income individuals.

 

Who supports the Durbin Amendment?

  • Democrats and merchants
  • Using the Durbin amendment, rent-seeking merchants leveraged the federal government to pad their profits, and Democrats were more than happy to oblige.
  • The Biden administration supports the Durbin Amendment
  • The Biden DOJ and FTC  submitted letters of support for a Federal Reserve rule aimed at clarifying routing provisions in the Durbin Amendment
  • Biden supports federal intervention in private contracts between private parties
    • Therefore, any Republican member in support of extending the Durbin Amendment to credit cards is effectively aligning themselves with the Biden administration.  Even if “only” on the routing provisions of Durbin.

 

 

Photo Credit: Lara Eakins

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