Study by Federal Reserve economists shows the ‘Durbin Amendment” is a failed policy

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It sometimes amazes me how many proof points Congress needs to act on an issue. Here is hoping that on the matter of debit card interchange fees, a recent Federal Reserve report is the straw that breaks the camel’s back.

The new study recently published by two Federal Reserve economists provides definitive proof, once again, that the Durbin amendment is a failed public policy. This deep dive examines the impact these price controls have had on consumers, and comes to the same conclusion that we and many others have been telling Congress for years: it hurts the very people Congress says they are trying to protect. 

{mosads}To be more specific, the study demonstrates that the Durbin amendment, no matter how well meaning, distorts the equilibrium of the market with disastrous consequences. According to the economists, the availability of free checking fell by more than half with the implementation of the Durbin amendment.

Further, the price controls forced banks and credit unions to raise monthly fees on checking accounts to the tune of 20 percent. This in turn forced minimum balance requirements for customers to increase by over 50 percent in order to avoid the fees.

But it doesn’t take an economist to figure out who lost out the most on this deal. That’s right, low income and some minority customers who rely on free checking and low monthly fees to keep their heads above water.

While this study is astonishing, it is not surprising. The Federal Reserve study is no less than the 12th report that has been written echoing the same claims. We’ve all heard of the saying: “There are lies, damn lies and statistics,” but when 12 different studies are telling us that the Durbin amendment hurts consumers you would hope Congress would look up and pay attention.

Unfortunately, there was a wasted opportunity earlier this spring, when Congress decided against trying to repeal the Durbin amendment as part of the CHOICE Act. We appreciate those who fought the good fight including House Financial Services Committee Chairman Jeb Hensarling (R-Texas), Reps. Blaine Luetkemeyer (R-Mo.), and Ted Budd (R-N.C.). It is my hope that this study will provide more firepower to convince their colleagues in Congress to do the right thing.

It is also my hope this study shines a light on the harmful role big box retailers have played in this policy debacle. Lest we forget the origin of the Durbin amendment was the promise by retailers that they would use the savings generated by interchange price controls to lower the price of goods and services for their consumers.

That promise was made in 2010 and has been broken every year since as retailers have kept all of that money for themselves without passing any of the savings on to consumers. For those keeping count at home, giant retailers have pocketed an additional $42 billion in profit due to the Durbin amendment, while everyday consumers have either seen prices stay the same or in many instances raised.

Ironically, big box retailers are actually harming their own customer base. By being greedy on the front end, they are leaving many Americans with less revenue to buy goods and stimulate the economy.

Consumers aren’t the only ones who have been hoodwinked by the retailers in regards to interchange fees. Big box retailers claimed the Durbin amendment would help small mom and pop businesses by creating a ceiling on the amount they can be charged on debit transactions. They neglected to mention that the price controls also created a floor, one that was often times higher more expensive than what these small businesses were paying in the first place.

As children, we learn very quickly not to touch a hot stove, and understand the consequences if we do. Congress has now been given a twelfth proof point to hold retailers accountable for their broken promises, restore order in the market and keep consumers from getting burnt yet again by the Durbin amendment.

Harry C Alford is President of the National Black Chamber of Commerce.

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


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