Retailers are once again making the rounds on Capitol Hill this week asking for another handout from Congress. Despite their annual $8 billion windfall—a direct result of the last-minute Durbin Amendment to the Dodd-Frank Act—they are looking for even more money under the false pretense that consumers will benefit.
It’s an empty promise, and we’ve heard it many times over.
The Durbin Amendment instituted price controls on debit transactions, meaning the fee retailers pay banks for each use of a debit card in their store is capped. Before the amendment, these fees were determined on a sliding scale based on the price of the item purchased. This price fixing has resulted in an estimated $32 billion in reduced fees—the vast majority of which is lining the pockets big box retailers, which pushed for the amendment.
Merchant representatives grudgingly acknowledge a windfall from lower interchange, but do not accurately report its full extent or where it actually went, recently noting: “There were savings, with the average swipe fee going down as much as 20 cents. Of those savings, about two thirds went to the consumer in lower costs, and half of the merchant’s third went to shareholders, the other half went into investments in their stores.”
In reality, a survey of merchants undertaken by the Federal Reserve Bank of Richmond tells a different story, one that is not good for consumers.
The study, using the merchant’s own data, revealed that “few merchants are found to reduce prices or debit restrictions as debit costs decrease.” Even more telling is the study’s report that the majority of merchants reported no change or did not know the change in their overall costs for accepting debit cards post-amendment.
If they aren’t “aware” of the change, how can they pass the savings onto their customers?
Another study by Phoenix Marketing International found most shoppers are not experiencing a price reduction at the point-of-sale, with 92 percent of shoppers reporting prices have increased or remained the same over the past year. In 2011 and 2012, Pulse and Bankrate studies found higher customer fees and more recently a study from the George Mason University School of Law Property and Environment Research found “there is no evidence that those cost savings have been passed-through to consumers.”
Study after study confirms that consumers are not seeing the savings retailers promised to provide. The Federal Reserve study also examined the impact on small businesses and found that most actually experienced a cost increase due to the Durbin Amendment. Price controls simply have not had the effect of benefitting the American people. In Europe where price controls are commonplace, consumers are feeling the same pinch. The European economy is practically stagnate, so the argument that the U.S. should imitate their crippling financial regulations is laughable.
Even more laughable is the fact that retailers are using the same argument—that consumers will benefit—to try to get Congress to implement even more interchange price controls.
Besides the obvious lack of benefit to consumers, price controls stifle innovation of electronic payment technologies and the security advancements those innovations provide. Interchange revenues ensure banks and other financial entities have the resources necessary to maintain and improve robust and sophisticated security measures—such as real-time predictive analytics, EMV, tokenization, biometrics and end-to-end encryption, to help keep consumers’ data safe.
Electronic payments have brought convenience, security and choice to consumers and merchants alike. We no longer have to ensure we have checks on hand or money in our pockets. If you’re a retailer, you can accept plastic anywhere and have the added benefit of attracting customers who don’t have cash on hand.
Interchange is essential to ensuring electronic payments can be enjoyed and utilized by consumers and merchants alike. Price controls present burdensome regulations that threaten a convenient tool of the future. So the next time you hear calls for price controls under the guise of helping consumers, remember the false promises that have come before.