Durbin a Dud?

Tyler Disburg
August 6, 2012 | COMMENTS

It's been almost a year since the implementation of the "Durbin Amendment" to the Dodd-Frank Wall Street Reform bill. As I'm sure you remember, the Durbin Amendment authored by namesake Dick Durbin of Illinois, dramatically limited interchange revenue on debit transactions. So on the eve of its anniversary we reflect, has the Durbin amendment achieved its "legislative intent"? Like most things in Washington, it depends who you ask.

Retailers-

You would think the one group that had universal affection for the Durbin amendment would be retailers. Well, you would be wrong. As it turns out the Durbin amendment actually drove interchange costs up for small businesses across the country. In fact, a New York coffee shop owner actually installed a "Durbin Amendment" ATM to mitigate higher interchange fees. Before the Durbin amendment was enacted his shop was paying just 1% (on average) for debit interchange. For his average ticket of $4.00 that amounted to $.04. Fast forward to today when he is paying $.24 for each transaction or an increase of 600%. It seems only the big box retailers with large sums of campaign cash benefited from government price controls in the payments industry. In fact, "big box" retailers have benefited to the tune of 8 billion dollars due to the Durbin amendment. Studies have shown that these savings have not been passed on to consumers, but perhaps more importantly, 6 percent of consumers polled actually believe that retailers ever planned to pass on savings to their customers.

Credit Unions-

Remember how credit unions under 10 billion dollars in assets were supposed to benefit from the advantage created by their "exemption" from the Durbin amendment. In theory this exemption would create an opportunity for small community banks and credit unions, in practice other portions of the legislation not only mitigated this exemption but harmed small financial institutions. For example the amendment requires all financial institutions to use a "two tier system" of unaffiliated processing networks. Merchants get to choose which network to route through. Nevermind that the same merchants charge whatever they would like for their merchandise, this market pressure inherently limits revenue to all financials regardless of size. The Federal Reserve said it best "smaller financial institutions may not ultimately be protected".

Clearly these are not the only stakeholders as it pertains to this legislation. However, at least to this former credit union executive, Durbin is a clear dud.

Tyler Disburg
CMBDC Executive Committee