The Durbin Amendment 10 Years Later: A Decade of Loss for Consumers and Small Businesses

October marked the 10th anniversary of the Durbin Amendment’s enactment — one of the most detrimental laws to come out of the response to the Great Recession. The Durbin Amendment, part of the Dodd-Frank Act, set federal price caps on debit interchange fees, or “swipe fees” and mandated routing requirements for payment networks. Big-box retailers and merchant groups touted the law as a win for consumers, stating that it would lower prices and provide more competition in the payments industry. In the decade since its enactment, it is abundantly clear that the Durbin Amendment has failed to accomplish its mission — instead gifting a massive windfall to mega-retailers like Walmart, Best Buy and Target, allowing them to line their pockets at the expense of American taxpayers.

When the Federal Reserve Bank of Richmond examined retailers’ response to the Durbin Amendment, it found that only 1.2 percent of merchants lowered their prices, while 22 percent increased them. By and large, big retailers banked the billions gained by Sen. Dick Durbin’s (D-Ill.) price controls, rather than passing them along to consumers. Time after time, government-mandated price controls have failed to benefit everyday Americans, and this instance is no exception.

Over the past decade, the Durbin Amendment has resulted in reduced access to banking services for millions of people and small businesses. Card issuers lost $106 billion as a result of the provision, including small-town banks and credit unions that were forced to raise fees in other areas to survive. A 2014 study by George Mason University found that the Durbin Amendment increased the unbanked population by 1 million Americans — primarily in minority and low-income communities.

Because of the Durbin Amendment’s price controls, low-income Americans are often excluded from vital banking services. Additionally, caps on debit interchange disproportionately hurt small businesses. Prior to the Durbin Amendment, payment networks were able to negotiate lower interchange rates with mom-and-pop shops. Post-Durbin, networks could no longer offer such discounts.

What’s more, the Durbin Amendment resulted in the elimination of popular offerings such as low-fee accounts and debit card reward programs. By placing caps on debit interchange fees, revenues for credit unions and community banks were slashed. As a result, smaller financial institutions were unable to provide consumers with perks such as free checking accounts or debit reward programs. These services were extremely popular with consumers, and when they were eliminated, people lost the value that went with these important financial products.

If hurting wallets wasn’t enough, the Durbin Amendment also eliminated consumers’ power to choose their debit-card processors, leaving merchants to override the consumer’s choice of Visa or Mastercard with whatever is cheapest for the merchant — without regard to the value consumers place on security and other benefits provided by the branded cards. Rather than respecting the customers’ freedom to choose, the Durbin Amendment mandated that all debit cards provide merchants with the ability to choose to route transactions over at least one unaffiliated network, regardless of the consumer’s wishes. Consequently, consumers were left with less choice and indeterminate security.

Allowing big retailers to ignore consumers’ preferences discourages innovation on the part of payment providers and places the focus solely on price in isolation from value — a classic race to the bottom. Not only did the Durbin Amendment reduce the incentive for innovation and competition, but it also undermined the capacity of card issuers to invest in vital research and development.

Today, these same merchant groups are pushing to expand the wealth transfer they received under the Durbin Amendment by applying its provisions to credit cards. This will result in the shifting of more costs to consumers and small businesses, freeing up even more margin for big box stores to deploy in further eroding the margins of small business — destroying the value that these businesses create at the local level. For consumers, an expanded Durbin Amendment means less access to financial services, higher costs, fewer or no credit card rewards and a more dangerous digital world. Unless big-box retailers are stopped, consumers can expect another decade of increased costs and decreased value.

Jeff Tassey is chairman of the Electronic Payments Coalition.   

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