Durbin amendment is a failure for customers: Repeal the merchant markup

For more than four years price-fixed interchange fees have enabled retailers to enjoy an extra $36 billion in revenue under the Durbin Amendment—at the expense of customers. Despite assurances that this income would be passed on to debit customers in the form of lower prices, retailers have taken advantage of this defective policy to pad their bottom lines leaving customers with broken promises and empty wallets.

Thankfully, House Financial Services Chairman Jeb Hensarling and Congressman Randy Neugebauer are addressing the Durbin Amendment which is allowing retailers to exploit the electronic payments system. Since 2011, the legislation has only harmed customers and placed undue stress on financial institutions and their ability to offer low-cost products.

{mosads}Chairman Hensarling has worked tirelessly to examine obstacles for consumers and financial institutions to promote economic growth through the Financial CHOICE Act. One of these proposed changes is eliminating the Durbin Amendment and we applaud the Chairman for his leadership by recommending to repeal this harmful failed policy.

We also support legislation authored by the Chairman of the Subcommittee on Financial Institutions and Consumer Credit, Congressman Randy Neugebauer,who deserves credit for the stand-alone proposal to repeal the Durbin Amendment.

A recent study by the Federal Reserve Bank of Richmond surveyed a diverse set of merchants and found that more than three-fourths in the sample did not change their prices after the Durbin Amendment was implemented. And, surprisingly, the study also found that one in four merchants actually increased prices since the Durbin Amendment took effect.

Other studies confirm customers are being short-changed at the register. The fourth annual survey of nearly 2,000 consumers by consumer research firm Phoenix Marketing International found the vast majority of shoppers have not experienced a price drop at the point of sale. In fact, in each of the 15 categories measured, at least 92 percent of shoppers reported that prices rose or stayed the same over the previous year.

The results of a recent poll conducted by Morning Consult are consistent with these findings, noting 94 percent of consumers do not feel they’ve received a discount from retailers since the Durbin Amendment passed. The survey also found that a majority of customers support repealing this harmful special interest bill after learning merchants are not passing along the promised savings to customers.

Another failure of this legislation is the huge cost to community banks and credit unions, who were intended to be exempt from this law. The Durbin Amendment intended to exclude small issuers from interchange fee-ceiling restrictions, but the law offers no such exemption from the costs it imposes in the form of new network routing and exclusivity provisions—a process that involves substantial and recurring administrative costs on top of an already challenging cost environment. This is exacerbated further when avoidable data breaches in retail stores require new cards to be reissued at the expense of credit unions and banks.

It is now clear that the only way to reverse the damaging impact on financial institutions of all sizes and customers is to repeal the Durbin amendment in its entirety.

We support a well-regulated payment system based on laws that provide a framework for constant product improvement, but the Durbin Amendment did not serve any traditional regulatory purpose—it simply enshrined into law a “permanent” economic benefit for one well-heeled industry.

The bottom line is this amendment introduced price-fixing to a formerly functional and competitive marketplace and failed to keep the dubious promises made to sell it—ultimately hurting customers. This legislation will erase that mistake and allow our vibrant payment system to continue to serve consumers.

Hunt is with the Consumer Bankers Association, Nussle of the  Credit Union National Association, Fine is with Independent Community Bankers of America and Berger is with the National Association of Federal Credit Unions