Congress deserves answers on retailers’ merchant markup
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Last month news broke that allergy sufferers were paying nearly 570 percent more for EpiPens than they were when the technology was introduced in 2007. Members of Congress, their constituents, and the media were outraged, and demanded an investigation. 

Rightly so. Consumers deserve answers. 

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Just as outrageous is how big box retailers have spent the $36 billion in additional profits they’ve pocketed since debit card price controls were put into place six years ago at the behest of merchant lobbying groups. Members of Congress and their constituents deserve answers. 

Even though debit card purchases had nothing to do with the Great Recession, Congress added these price controls, proposed by Sen. Dick DurbinRichard (Dick) Joseph DurbinQuestions loom over Franken ethics probe GOP defends Trump judicial nominee with no trial experience Democrats scramble to contain Franken fallout  MORE (D-Ill.), to the Dodd-Frank reform bill. Lobbyists promised lawmakers that merchants themselves wouldn’t benefit from these caps, that, instead, retailers would pass their extra profits on to consumers in the form of lower prices. 

Research from at least three sources—the Federal Reserve Bank of Richmond, George Mason University professor Todd Zywicki, and Phoenix Marketing International—all make it clear retailers haven’t lived up to their word. In a handful of earnings calls, some individual retailers have even admitted to pocketing millions of dollars from the Durbin price controls. 

We estimate that, overall, retailers actually have added $6 billion to $8 billion a year to their existing profits from the Durbin “merchant markup.” 

The price controls have had numerous unintended side effects. In addition to the merchant markup, they’ve contributed to the loss of consumer benefits like free checking, have increased costs for smaller community financial institutions, and have caused small retailers to lose important discounts on debit card transactions. 

That’s not all. 

Perhaps the most worrisome side effect is the price controls’ potential impact on consumer data security. The financial services industry doesn’t pocket interchange revenues. A percentage is devoted to identifying and developing new data security technologies to protect consumers. Financial firms also use revenues to make consumers whole after their account has been used to make fraudulent transactions. 

Despite the fact the Durbin Amendment shifted more than $30 billion over the last six years to retailers, financial firms still far outpace the retail industry when it comes to protecting consumer data. According to a KPMG study released in August, 85 percent of financial services companies have a leader within their firm who is devoted solely to protecting information security. That figure compares to just 58 percent for retailers. In the last year, 66 percent of financial services providers have used capital funds to invest in information security; just 45 percent of retailers have. That’s probably why, so far this year, we’ve seen nearly 475 times more data breaches in the business/retail sector than we’ve seen in the financial services industry. 

These statistics are startling, but aren’t surprising considering merchants’ substantial efforts to block the commonsense national data standards for retailers that are in H.R. 2205. Today, financial institutions of all sizes are required to develop and maintain robust internal protections to combat and address network intrusions and data theft. Despite the millions of consumers who’ve had their data exposed in retailer breaches, merchants have actively opposed adopting similar standards. A Morning Consult poll found 90 percent of consumers agree that merchants should be held to similar standards as banks and financial institutions. 

It’s time retailers listen to their customers and support H.R. 2205. It’s also time they answer questions about the Durbin merchant markup and face the customers they promised would benefit from debit card price controls. We’re hopeful that will happen when the House takes up Financial Service Chairman Jeb Hensarling’s Financial CHOICE Act, which includes a provision to repeal the price caps, or Rep. Randy NeugebauerRandy NeugebauerGOP eager for Trump shake-up at consumer bureau Lobbying World The deep state is recklessly supporting bad energy policies MORE’s (R-Texas) H.R. 5465, which also proposes to end the Durbin markup. 

These two lawmakers have shown considerable courage in taking on big box retailers that want nothing more than to avoid giving answers. Now, their colleagues must show the same fearlessness. 

Wilkinson is executive director of the Electronic Payments Coalition.


The views expressed by authors are their own and not the views of The Hill.