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Durbin Amendment Still Costing Us

First it was new bank fees.  Now comes the other side of the fail policy known as the “Durbin Amendment.”

The Durbin Amendment” was the most fought-over part of the Dodd-Frank bill when it was debated in the United States Senate (Senator Kohl and former Senator Feingold were both “Yeas”). The point of the amendment was to put a cap on the swipe fee consumers — and to extent retailers — pay when they use their credit, debit, or check card.  Normally, this fee is nominal.  It’s something banks pay to each other to assure that the customers’ money gets from one bank to the other.

But the Durbin Amendment has changed the equation and the revenue stream for banks.  By capping the fee, banks and retailers who kicked the fee on to us, are looking for other ways to make up the revenue.  Here’s what Heritage wrote in March when the first of the damage the Durbin Amendment was wrecking on the free market:

Meanwhile, The Wall Street Journal reported Thursday that Bank of America and Chase are eyeing new checking account fees to make up for the $12.2 billion that banks are estimated to have lost to the recent flood of regulation.

The Durbin Amendment took effect last October 1 and limits the amount that banks can charge retailers to process debit card transactions. Popular among major retailers, the provision directed the Federal Reserve to impose a price cap per debit transaction, which was subsequently set at 24 cents (on average). Consequently, retailers are paying banks about 45 percent less than they did prior to the rule.

Not surprisingly, banks have sought new sources of revenue to make up for the losses—just as critics of Durbin predicted. For example, Heritage’s David John correctly predicted last year that, faced with sharply lower profits from debit card use, “card issuers are almost certain to react by doing one or more of the following: imposing an annual fee on debit cards; raising other fees that would be paid by consumers; or reducing the interest rates paid on consumer deposits. While such a response would hurt all consumers, it would especially damage those with moderate and lower incomes.”

Industry analysts say the Durbin Amendment has “saved” consumers between $1 to $7 Billion in fees.  But where are the savings being passed onto us?  Not according to TIME magazine which is reporting that banks are pointing the finger at retailers, retailers are pointing at distributors, and on and on.

So, uh, where’s that $7 billion? There’s plenty of finger-pointing among financial industry players.

Retailers say they don’t have it: A survey of online merchants conducted recently by Internet Retailer found that since the swipe fee cap took effect, only around 15% say they’re paying less, while nearly 18% say they’re actually paying more. Maybe it’s too soon, the site suggests, pointing out that many merchants might not have renewed their contracts with the processing networks that act as go-betweens for banks and retailers. Still, it cites an analyst who says, “I would have expected Internet retailers to have appreciated a benefit from the rate reduction.”

The NRF [National Retail Federation] says customers are losing out because the Fed didn’t adopt its suggested cap of between 7 and 12 cents per swipe. “We believe the numbers for the big banks are too high,” senior vice president and general counsel Mallory Duncan says in a recent statement. A lower cap, he adds, would mean “significantly greater savings for merchants and their customers.”

But payment processors say it’s retailers, not them, hoarding the cash. “Industry data shows that the retail industry has already seen $2.8 billion in savings since the government regulation on debit cards went into effect,” a trade group representing banks and processors says on a website it set up called wheresmydebitdiscount.com.

This group, the Electronics Payment Coalition, says gas stations alone are on pace to keep $1 billion a year in savings. They point to research showing that debit cards are the most popular method of payment at gas stations. But some stations have two prices — one for cash, one for cards — and don’t distinguish between credit cards, for which retailers are charged higher interchange, and debit cards with their 24-cent cap.

As it’s being shown, the Durbin Amendment is not working out so well.  So far, the only thing I’m seeing is an annual fee for having my check card with one bank and a monthly fee attached to another because I don’t keep an average of $1,000 or more in it.

Yeah, it’s a checking account.  If I wanted to keep a $1,000 or more in a bank account, it would be in my savings!

Durbin and supporters of his amendment told us that capping the swipe fee would save us all money.  So far, six months in there hasn’t been much of any savings at all for consumers to see.

Repeal it.  Hell, repeal Dodd-Frank as well.

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  • Billiam

    Yes, repeal both of those piles of afterbirth and re-institute Glass-Steagle.