The House Financial Services Committee will mark up Chairman Jeb Hensarling’s (R-Texas) Financial CHOICE Act on Tuesday. One provision of the legislation that we strongly support is repeal of the Durbin Amendment.
This amendment, which set price controls on debit interchange fees for some financial institutions, was added to the Dodd Frank Act during conference committee at the behest of big-box retailers. These interests pledged the provision wouldn’t affect “exempt” entities — under the Act, those with holdings less than $10 billion.
We knew that promise would be impossible to keep. In March 2011, a few months after Dodd-Frank was passed, Gerber Federal Credit Union CEO John Buckley testified on behalf of NAFCU in front of House Financial Services Subcommittee on Financial Institutions and Consumer Credit, calling the exemption “toothless.”
We were right.
Data now available from the Federal Reserve makes it clear that interchange revenues have fallen for “exempt” entities, including credits unions and community banks. Since January 2011, just before the price caps went into effect, the average interchange fee for “exempt” institutions has declined more than 16 percent for PIN transactions and more than 5 percent for transactions where consumers used a signature to validate the purchase.
Where are these revenues going? Good question.
At the time, when they were pushing them back in 2010, merchant interest groups convinced members of Congress to support the Durbin price controls by pledging retailers’ savings would find their way to consumers in the form of lower prices at the checkout counter.
Instead, retailers have amassed an estimated $36 billion in extra profits for themselves. The Richmond Federal Reserve and Phoenix Marketing International have both found no evidence that retailers passed their Durbin Amendment savings on to their customers. Some retailers have even admitted on their earnings calls to pocketing Durbin Amendment profits.
That’s not all: According to the Richmond Fed, one in four merchants actually increased prices after the Durbin Amendment took effect.
While the Durbin Amendment has helped retailers line their pockets, it’s hurt some of our most vulnerable communities. In a letter sent to the House Financial Services Committee in July, George Mason University law professor Todd Zywicki wrote, “[T]he adverse effects of the Durbin Amendment have fallen hardest on the economically most-vulnerable Americans: lower-income and younger consumers who have lost access to bank accounts and been pushed into the ranks of underbanked and unbanked consumers.”
The House Financial Services Committee deserves answers about why retailers didn’t keep their promises to pass on savings to customers.
But, ultimately, the committee should get rid of the price controls. The evidence speaks for itself: This provision has harmed credit unions and the individuals, communities and businesses they serve, and it hasn’t benefitted retail customers at all.
It’ll be a tough fight. Hoping to amass an even greater windfall, merchants have continued to misrepresent the effects of the Durbin Amendment. Members of the House Financial Services Committee should stop listening to their pleas and broken promises and take a look at the facts that prove this policy has failed.
Dan Berger is president and chief executive officer of the National Association of Federal Credit Unions.
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