This week President Donald Trump is set to order a regulatory rollback for the financial industry with his sights set on the Dodd-Frank Act. As the Trump Administration begins taking action to relieve consumers and businesses of the massive Dodd-Frank regulatory burden, the Administration should begin with one of the most onerous and failed Dodd-Frank policies – the Durbin Amendment.
Passed as part of the Dodd-Frank Act, the Durbin Amendment allows the government to set price controls on fees for debit card transactions. Prior to enactment of Durbin, these fees were not capped, and issuers of debit cards, such as credit unions and banks, were encouraged by free market competition to offer consumers benefits, such as free checking accounts.
However since Durbin was passed, not only have free checking accounts and other consumer benefits disappeared, but so has access to the banking system for many low-to-middle income Americans.
Before Durbin was enacted in 2009, 76 percent of banks offered free checking accounts. After Durbin was passed, that number fell to 45 percent in 2011, 39 percent in 2012, and an all time low of 37 percent in 2015. As a result of this decline, many low-to-middle income Americans have been pushed out of the banking system. This has led to over 1 million Americans becoming “unbanked.”
Yet the regressive trends resulting from Durbin are not the only concerning outcome. In passing Durbin, proponents of the Amendment argued that consumers would receive the benefits of merchants receiving a fee break on debt transactions. However, almost zero of those benefits were passed along to consumers.
Studies show that instead of consumers receiving price breaks as a result of the fee cap, 77 percent of merchants have not changed prices, while 22 percent have actually increased prices. Such unfulfilled promises only harm, not help, American consumers.
The Durbin Amendment has not only failed at its stated goal of benefiting the American consumer, but has actually achieved the exact opposite. Instead of consumers seeing price cuts, prices have stayed the same or increased, and Americans have been driven out of the banking system leading to millions becoming unbanked.
The Durbin Amendment is failed policy. Hopefully for the millions of unbanked Americans and consumers seeing costs rise, President Trump will act to right the ship and target the Durbin Amendment for repeal, before the ill-fated consequences of this terrible policy become even worse.
Photo credit: Gage Skidmore