A new study by the Credit Union National Association (CUNA) and the American Association of Credit Union Leagues (AACUL) examines the impact of debit card interchange legislation on consumers, small businesses, and financial services companies.
The study, conducted for the groups by Cornerstone Advisors, looked at the impact of the 2010 Dodd-Frank Act’s Durbin Amendment, which implemented debit card routing mandates and debit interchange price caps. It examined the financial impact from existing and proposed regulations – including the interchange bill introduced by U.S. Sen. Richard Durbin (D-IL).
Overall, the study – entitled The True Impact of Interchange Regulation: How Government Price Controls Increase Consumer Costs and Reduce Security — revealed that debit card routing mandates brought negative impacts, regardless of any exemptions built in for smaller financial institutions. It added that expanding mandates to credit cards would further compound the problem.
“The research clearly shows that imposing a government mandate on interchange didn’t help consumers or small businesses the first time around,” CUNA President and CEO Jim Nussle said. “To keep credit cards accessible and safe, merchants must have equal responsibility to protect the data and systems that enable their quick and secure payments. Cutting credit card interchange with this new bill would help big box retailers avoid responsibility and put consumers at greater risk. We’ve seen the unintended consequences from the Durbin Amendment for more than a decade. Let’s not double down on a bad idea.”
The analysis pointed out some of the impacts of the Durbin Amendment. Among them, it said that all issuers of debit cards—including those under the $10 billion asset threshold—had significant negative revenue impacts. It also showed that most financial institutions addressed revenue shortfalls through higher monthly fees and increased minimum balance requirements.
Additionally, the report said that consumers saw greatly reduced access to free checking, and the number of unbanked Americans spiked following the rollout of the Durbin Amendment. It also said that card not present (CNP) fraud is growing faster than payments.
“Price controls create an imbalance in a market in contrast to when prices are set through market forces,” the study stated. “This imbalance leads to unintended consequences including the increased cost of everyday banking products. The intent of the interchange price controls for debit transactions was to deliver savings to customers at the merchants from which they purchase goods or services. There is a lesson policymakers should have considered nearly a decade before the implementation of Regulation II.”
The study offered three key recommendations. One, it said merchants and any network that processes card transactions must be held accountable to a standard for fraud protection and data security. Two, the asset threshold tied to debit card transactions should be raised significantly. Three, future credit card regulations should NOT be enacted because they harm both consumers and the banking system—with small, local community financial institutions suffering disproportionately.
CUNA sent members of Congress the study this week, urging them not to support a repeat of the Durbin Amendment.