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Time to repeal the Durbin Amendment for a strong interchange system

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It’s time to get rid of the Durbin interchange amendment. The evidence that this last-minute addition to the Dodd-Frank Act has done little more than line the pockets of big-box retailers is clear, and mounting. 

We know the amendment hasn’t helped American families. It’s been seven years since retailers promised consumers that they’d pay less at the checkout counter if Congress put price caps on debit card fees. Analysis of Federal Reserve data shows retailers have pocketed about $42 billion during this period, and shoppers are still waiting for those rollbacks.

{mosads}Federal Reserve data also shows that the Durbin amendment’s price cap negatively impacted small financial institutions. Despite the exemption for institutions under $10 billion, interchange revenue to credit unions and community banks has dropped, with a 16.6 percent decline in revenue from PIN transactions and 5.2 percent decline in revenue from signature transactions. 

While the price cap portion of the Durbin amendment gets the most attention — the “exemption” serves as easy cover for retailers — credit unions and small banks also received no exemption from the other half of Durbin, which requires a debit card to have at least two unaffiliated networks on it. Having more than one network on a card was possible before Durbin, and many credit unions exercised that choice. Now, it’s a government mandate, even if it’s not the best solution for cardholders. 

What this routing provision really did was take the choice about processing out of credit unions’ hands and give it to retailers. That might sound like splitting hairs. Who cares who chooses a network? Well, credit unions do, and so do the families and small businesses we serve. Credit unions want members to be able to have access to secure, reliable, responsive networks. Merchants, which have been fighting legislation in Congress that would require retailers to more actively protect consumers against data breaches, aren’t as concerned about those benefits.

The routing regulation has imposed significant costs on credit unions and small banks, compounding the harm that’s resulted from the Durbin price caps. 

The National Association of Federally-Insured Credit Unions anticipated these problems. That’s why we opposed the Durbin amendment from the start, and we are strongly urging Congress to repeal it now.

Removing this arbitrary price cap would not only restore some fairness to the interchange system, but it could increase the benefits realized by a greater range of merchants, making the interchange system stronger and better for consumers.

A new survey and study conducted by Javelin Strategy & Research, released by Javelin and the Electronic Payments Coalition (of which NAFCU is a member), has found that small merchants are much more concerned about the value they get from interchange than the cost.

The survey found that most small retailers aren’t familiar with the Durbin amendment, but they understand interchange, see the fees associated with card processing as a necessary cost of doing business, and are satisfied with interchange. In fact, it shows retailers’ satisfaction is even higher the more they pay, because the ones paying more are getting more services, such as 24/7 tech support and chargeback management. According to the Javelin report, federal price controls will erode the flexibility small merchants have now to choose the package, and price, that’s right for them.

Big-box retailers have told Congress that consumers and credit unions are better off with the Durbin amendment. We know that’s not true, because the greatest beneficiaries of interchange price caps are the same merchants that reneged on their stated commitment to channel the savings they enjoy under these caps into savings for consumers. 

It’s time for a change. We need to return to a policy that allowed both small merchants and credit unions – partners in the interchange system – more choice and flexibility. It’s time to repeal the Durbin interchange amendment.

Berger is president and CEO of the National Association of Federally-Insured Credit Unions.


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

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