Let’s resolve to repeal Durbin’s debit card interchange price controls in 2026

One safe New Year’s political prediction is that the fight between retailers and financial institutions over so-called swipe fees will continue. The debate has raged for 15 years with no sign of abating.

As longtime observers of this policy battle over the years know, every time you swipe your credit or debit card, retailers pay fees behind the scenes. These charges to retailers from the banks and credit unions that issue the cards are known as interchange fees.

Fifteen years ago, the retailer lobby scored a major victory with the Durbin Amendment, enacted as part of the Dodd-Frank financial overhaul in 2010. The amendment directed the Federal Reserve to set debit card interchange fees “reasonable and proportional to the cost,” effectively imposing price controls that sharply reduced debit fees. Sen. Dick Durbin (D-IL) claimed these caps would prevent banks from overcharging merchants and would provide relief to consumers.

After the law passed, there was still fierce debate over how the Fed would implement it. In early 2011, retailers spent $12 million on lobbying and political marketing, portraying interchange fees as banks “gouging” hard-working merchants.  In reality, these fees cover the costs of processing card transactions, managing fraud risk, and maintaining the payment networks.

Regardless of the fees’ role in the payment system, the retailers’ lobbying helped shape the Fed’s final rule. Although not as stringent as the Fed originally had proposed, the final rule still capped fees at 21 cents per transaction plus a 0.05 percent ad valorem surcharge, along with a small adjustment for fraud costs.

From the beginning, many disagreed with the goals of the Durbin Amendment. CEI disputed these rationales from the beginning and joined a coalition of 15 conservative and free-market groups. This coalition argued that, contrary to Durbin’s claims, these price controls would primarily benefit large retailers while shifting costs to consumers, with little to no relief to small merchants or everyday cardholders. As the Durbin Amendment went into effect, CEI continued to emphasize its harms in subsequent analyses. A recent report released by the Progressive Policy Institute (PPI) shows that there was little evidence of any consumer savings.

Despite these findings, there is still a push among policymakers to tighten the cap. At the end of 2023, the Fed under the Biden administration proposed to lower the cap from 21 cents to 14.4 cents. Many opposed such a policy change in 2024, including CEI, which filed comments against the proposal.

Earlier this month, the American Bankers Association and eight other financial sector associations, including groups representing credit unions and community banks, urged the Federal Reserve to withdraw this proposal. This would be a welcome move to prevent further damage. An even more prudent move would be for the Federal Reserve to set the fee cap as high as the law permits. CEI delineated a method for doing so in its 2024 comments.

Large retailers made bank
Looking at who actually gained from these price controls tells quite the story. It was not the consumers, as Durbin had claimed, nor the mom-and-pop shops. It was the large national retail chains and their shareholders. PPI found that giant national retail chains accounted for 72.5 percent of all consumer purchases, which implies that they were the primary beneficiaries.

How did the large retailers manage such a win? With the fee cap, the cost per swipe decreased because less money went to the issuing bank. For retailers processing millions of transactions each year, even a few cents saved per swipe adds up to a substantial total. Smaller merchants did capture some savings. However, since they handle far fewer transactions, the absolute amount was modest. One reason for the modest savings is that, as research from the Federal Reserve Bank of Richmond shows, interchange fees actually increased for nearly one-third of merchants after the fee cap. In contrast, large national chains account for the bulk of purchases, thereby effectively giving them the lion’s share of the benefit.

The advantage for large retailers goes beyond volume. Their market dominance allows them to maintain their pricing level without losing customers, and they can influence payment routing and network agreements. In short, large retailers leveraged the economies of scale to capture the financial benefits of the fee cap while maintaining pricing power.

Consumer costs rose due to Durbin fee cap
Consumers also lost out because of these price controls. A University of Chicago study estimated that the implementation of debit interchange fee caps under the Durbin Amendment resulted in a net consumer welfare loss of roughly $22 billion to $25 billion in present discounted value. These findings show that consumers lost more from higher costs and reduced banking benefits than they gained from any pass‑through of merchant savings.

As CEI Senior Fellow and Director of Finance Policy John Berlau pointed out back in 2011, banks faced a $6.5 billion reduction in revenue as a result of this fee cap. Banks still had to cover a number of costs, including fraud prevention, compliance, network participation, and customer service. As standard microeconomic theory predicts and as Berlau has noted, banks adjusted consumer-facing fees and services, largely shifting costs from merchants to account holders rather than absorbing the revenue loss.

A study from the University of Pennsylvania calculated that following the fee cap, banks reduced the availability of free checking accounts by about 40 percentage points and recouped lost interchange revenue by increasing monthly checking fees by nearly double.

Similarly, researchers at George Mason University, including GMU law professor and CEI board member Todd Zywicki, demonstrated that a few years after the Durbin Amendment’s implementation, the minimum monthly holding on fee-free current accounts tripled and the monthly fees on non-free current accounts doubled. This hurt customers at the margin most and resulted in an increase in the unbanked population of about 1 million, primarily from low-income families.  

Barriers to building credit
As PPI discovered, the higher banking fees based on a threshold monthly balance affected 70 percent of accountholders in the lowest income quintile versus 3 percent in the highest quintile. Because mainstream bank accounts and credit products are the primary vehicles through which consumers establish and improve credit histories, these increased costs create real barriers to long‑term financial advancement.

Broader research confirms that price controls on interchange fees have reduced access to affordable banking services, discouraging bank account ownership among lower‑income households and contributing to underbanking. PPI is right to note that the fee cap “created a barrier for some lower-income households to establish sound credit scores needed for bank loans.” As Berlau emphasized, debit fee caps harm the very consumers they were intended to help, particularly lower-income households who rely on mainstream bank accounts to build credit histories.

Time to repeal the debit card interchange price controls
The substantial body of evidence shows that debit interchange fee caps failed to lower consumer prices. Instead, the fee cap resulted in higher bank fees, reduced account access, and greater barriers for low‑income households seeking to build credit. CEI has long criticized price controls on debit cards for distorting markets while shifting the costs to consumers.

The debate should not end with persuading the Federal Reserve to withdraw its proposed tightening of the fee cap. In 2026, policymakers should pursue full repeal of the Durbin Amendment price controls, thereby ending the consumer harm that the price controls of this destructive Dodd-Frank provision have caused for nearly 15 years. They should also, of course, resist pressure to enact similar measures to force down interchange fees in the credit card market.