Americans have faced tremendous adversity over the past year amid the coronavirus pandemic — both personally and financially. The policies Washington puts forward today must be focused entirely on bettering the lives of American consumers.
As the Federal Reserve revisits its interchange policy and Congressional chatter around the Durbin Debit Interchange Amendment picks up steam, now is the time for policymakers to repeal this harmful law.
Not only has the Durbin Amendment been a disastrous attempt at price fixing guised as a credible policy proposal, but its repeal would benefit consumers — including many low-and-moderate income communities.
According to a George Mason University study, the Durbin Amendment’s passage has cost the average low-income bank customer $160 per year. These are funds that could help struggling American families cover needed costs, particularly as an astounding 63 percent of Americans are living paycheck-to-paycheck amid a worldwide pandemic.
It is important policy takes a clear-eyed view of the facts. In a world without the Durbin Amendment, consumers would have more financial options and resources to use. A study conducted by the Federal Reserve found that 35 percent of banks were less likely to offer consumers free checking because of capped debit interchange fees, and debit cardholder reward recipients declined 30 percent since the law passed.
Repealing the Durbin Amendment would reverse these trends, thereby providing consumers with greater choice and additional financial benefit.
Additionally, community-based lenders such as credit unions would be able to reallocate resources that have been used to cover the substantial and recurring administrative costs placed upon them by this failed policy. They could instead use these funds to directly help our communities continue to recover from the coronavirus pandemic and its economic fallout.
After over a decade of failed policy, it is time to reverse course as government price controls on debit card interchange fees have proven themselves unworkable.
It is also important policymakers recognize the biggest proponents of the Durbin Amendment are those that have failed to provide compelling evidence of their core argument regarding interchange. While merchant and retailer groups promised that consumers would see billions of dollars in savings at the checkout line, the savings never materialized. Instead, retailers and merchants have padded their own pockets to the tune of $90 billion in interchange revenue. Prior research has shown that the decision to institute interchange caps in Spain and Australia produced similar, lopsided results.
Despite the promises to lower prices, only 1 percent of merchants reduced prices, 77 percent kept prices the same, and 22 percent raised them, according to the Federal Reserve Bank of Richmond. American consumers were fleeced.
While this debate will surely spark strong feelings on all sides, policymakers need to be wary of the empty promises and hollow words echoes by the Durbin Amendment’s strongest supporters. This is especially true as some call to expand aspects of this failed policy.
The fact is interchange caps have only rewarded merchants that wish to distort the competitive landscape of the marketplace by restricting consumers’ freedom to choose the safe, affordable, and innovative payment option that works best for them.
Enough is enough. Instead of listening to calls to expand it, now is time for policymakers to abandon the Durbin Amendment all together.
B. Dan Berger is president and CEO of the National Association of Federally-Insured Credit Unions (NAFCU).