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A year ago, the Dodd-Frank Wall Street Consumer Protection Act’s Durbin Amendment price controls went into effect, causing consumers to lose free checking and be soaked with other bank fees. If retailers have their way — and a similar price control scheme is pushed through for credit cards as well as debit cards — consumers could be hit with annual fees on their credit cards and lose credit card rewards as well.
At the behest of lobbying by some of the nation’s biggest retail chains — including Wal-Mart, Home Depot, 7-Eleven and Walgreens — banks and credit unions were allowed to charge retailers no more than 21 cents to 26 cents per debit card transaction. This represents an ongoing $8 billion annual transfer from banks’ to retailers’ coffers, but new data confirm that consumers, community banks and credit unions are the ones who suffer the most.
Around this time last year, Bank of America caused a furor when it announced a $5-per-month debit card fee to cover the lost revenue from the near halving of fees that banks had charged retailers. After an outcry from consumers, B of A and other banks dropped this specific fee.
But as I wrote on OpenMarket.org  at the time, “There’s no such thing as a government-imposed free lunch.” And now, after Durbin’s first anniversary, it’s clear the consumer is paying the retailer’s tab in many other ways.
According to the recent annual Bankrate.com survey, only 39 percent of banks offer free non-interest checking accounts with no minimum balance, down from 45 percent last year. That compares to 2009, the year before Dodd-Frank and its Durbin Amendment became law, when a whopping 76 percent of banks offered free checking with no minimum balance.
Debit and credit card interchange fees are what merchants pay banks to maintain a payment card system that can process consumer transactions in milliseconds. No one benefits more from this speed and efficiency than retailers, so it made sense that before Durbin, merchants paid the bulk of what it took to maintain the infrastructure of this system. The Durbin Amendment was essentially designed to shift this cost to consumers.
In some cases, the Durbin Amendment has cost regional banks about one-third of their net income. And the measure is also hurting community banks and credit unions. Even if they are exempt from the 21- to 26-cent price cap, they are still subject to the measure’s other mandate forcing banks to allow merchants to “route” transactions through another bank’s network, a provision that functions as a backdoor price control. Smaller banks also fear that retailers could steer customers toward big banks’ cards that are directly subject to the cap. Groups representing community banks and credit unions recently pointed out in a letter to Congress that interchange revenue at “exempt” institutions fell by five percent in the first three months after Durbin was implemented, and warned that “even more harm to community banks and credit unions is likely” as more effects of the Durbin Amendment are felt.
While competition is the American way, and it is always good for consumers to look around and see if they can get a better deal from another bank or credit union, there will likely be no escaping the deadweight loss of this government regulation. And the Bankrate survey warns of higher fees not just on checking accounts, but on the use of ATMs as well.
What about lower retail prices retailers promised if these price controls went through? Those have yet to materialize, and it looks like the big retail chains are mostly pocketing the $8 billion windfall they have received. While some retailers claim the Durbin Amendment has helped them “hold the line” against price increases, a new survey by the Electronic Payments Coalition — a group representing payment card networks, banks and credit unions of all sizes — showed consumers are paying 1.5 percent more on average for retail goods. While an economic study that holds factors such as inflation constant is needed to truly judge whether Durbin has brought any savings to consumers, the burden is on the retailers that are reaping the windfall to prove consumer benefits, but they have failed to do so thus far.
It seems the big retail chains are too busy lobbying Congress to bring Durbin-like price controls to credit cards as well as debit cards. So if you like the new checking and ATM fees, you’re going to love the reductions in credit card rewards and the return of annual fees on your credit cards if retailers again get their way in further shifting the cost of credit card processing to consumers.
If, however, you don’t like new fees and you don’t like paying big retailers’ share of credit and debit card processing, push for repeal of the Durbin Amendment through bills such as the bipartisan Consumer Debit Card Protection Act (HR 3156), sponsored by Reps. Jason Chaffetz (R-Utah) and Bill Owens (D-N.Y), and get informed about other costly mandates from and constitutional defects of Dodd-Frank.