The Federal Reserve Board of Governors recently released a report called “The Impact of Price Controls in Two-sided Markets: Evidence from US Debit Card Interchange Fee Regulation.” That dense title is one that few consumers—or even policy wonks—will put on their August reading lists.
They should. It proves, yet again, that lawmakers like House Financial Services Committee Chairman Jeb Hensarling (R-Texas), Reps. Blaine Luetkemeyer (R-Mo.), and Ted Budd (R-N.C.) and others were right: the Durbin amendment, shoved into the 2010 Dodd-Frank bill at the last minute by politicians doing the bidding of merchants like Walmart, is the reason that American consumers are paying more to bank.
There are now at least a dozen studies that conclude consumers are worse off because of Durbin. Meanwhile, we’ve yet to see one that relies on data produced post-Durbin to prove the policy’s consumer benefits.
The recent Federal Reserve report, which was written by Mark Manuszak and Krzysztof Wozniak, confirms that, with Durbin, consumers are less likely to enjoy free checking accounts. In fact, they’re about half as likely. Today, approximately 30 percent of consumers don’t pay for this important service. Manuszak and Wozniak estimate that, if the Durbin amendment had never been passed, that number would be much higher. Nearly two-thirds of consumers would have access to free checking. This loss hit consumers regardless of whether their financial institution is subject to the Durbin amendment price controls or not. The Fed paper found consumers who bank at institutions exempt from the caps also are now far less likely to have access to free checking accounts than they would be had the price controls never been implemented.
This evidence supports the Electronic Payments Coalition’s long-held argument that the Durbin amendment harmed both large and small financial institutions and their customers. Of course, data already existed to back up that claim. Per transaction interchange revenues have fallen five to 20 percent for exempt issuers since October 2011.
Manuszak and Wozniak also found that consumers are paying higher fees as a result of Durbin. Fees for interest-bearing checking accounts at nonexempt banks increased about 20 percent while fees for noninterest checking accounts soared 17 percent.
The Durbin amendment price controls also affected minimum balance requirements. Manuszak and Wozniak note that, for most accounts, financial institutions still waive monthly fees if consumers keep a certain amount of money in their account. Meeting those minimum balance requirements, however, is more difficult today. For noninterest bearing accounts, consumers need to keep an additional $400 on hand to avoid checking fees. That’s an increase of 50 percent. Minimum balance requirements for interest bearing accounts spiked even more, rising 55 percent, or $1,700.
As one would expect, lower-income consumers feel the impact of these requirements the most. Several hundred dollars is peanuts to the individuals who run major retailers like Walmart. It’s a substantial sum to those who save paycheck to paycheck to shop at big box retailers.
As noted above, the Fed’s paper is one of at least 12 that have examined the Durbin amendment and its effects on consumers. Studies conducted by researchers at Harvard University’s Mossavar-Rahmani Center for Business and the International Center for Law and Economics, for example, have provided similar evidence about free checking and minimum balance requirements. Other studies, like a December 2015 Federal Reserve Bank of Richmond paper, found retailers didn’t pass on Durbin amendment revenues to consumers in the form of lower prices, as they had promised they would. In fact, that paper found only one percent of merchants cut consumer prices after Durbin was enacted. Some even raised prices!
Big box merchants, meanwhile, don’t have a shred of data. They tout one paper that relies on data on manufacturer trade promotions published in 2009 (before the Durbin amendment even passed) that makes no mention of interchange fees. Manuszak and Wozniak, meanwhile, make it clear that results like higher minimum fees are attributable to Durbin. The two scholars directly state that increased consumer banking costs are “primarily driven by the interchange fee restriction [i.e., Durbin price caps] rather than other factors related to the financial crisis or subsequent regulatory initiatives.”
The fight to repeal the Durbin amendment isn’t over. There’s too much evidence against this policy for it to be. Consumers cannot stand by and let retailers line their pockets. Congress must not either.
Wilkinson is executive director of the Electronic Payments Coalition.
The views expressed by this author are their own and are not the views of The Hill.