One of the most hotly contested new financial regulations may not be providing retailers with the benefits they were promised, according to a new survey from the Federal Reserve Bank of Richmond.
The so-called Durbin Amendment, meant to cap the fees that banks can charge retailers on debit card transactions, has had only "limited and unequal impact on merchants' debit acceptance costs," according to the study.
The Durbin Amendment, part of the 2010 Dodd-Frank financial reform law, was supposed to limit the billions of dollars in fees paid by retailers to banks through "swipe fees" at 21 cents per transaction, effectively halving the average fee at the time.
But the Richmond Fed, partnering with Javelin Strategy & Research, polled 420 merchants across 26 sectors and found that the rule made little difference for the vast majority of retailers.
Two-thirds of the businesses reported no change or that they did not know the change in swipe-fee costs after the implementation of the rule.
A quarter actually reported an increase in costs, especially for small-ticket transactions, which is likely the result of a quirk in the rule that effectively set a floor as well as a ceiling on swipe fees.
Fewer than 10 percent of businesses said that they saw debt costs drop.
Those results were uneven across industries: Retailers that sell big-ticket items, such as furniture or sports goods stores, saw their costs fall, thanks to the cap. Places with high numbers of small transactions, however, such as fast-food restaurants, saw their costs rise.
As a consequence, the study found, consumers did not benefit from the rule, as had been promised. The survey revealed that "few merchants are found to reduce prices or debit restrictions as debit costs decrease." The researchers said that they were not able to determine why retailers did not lower prices in response to decreased debt costs, when previously they raised prices to counteract debt cost increases.
Banks opposed the rule and waged a fierce lobbying war against it during its drafting, arguing that it would only shift costs from consumers paying at the counter to consumers at banks.
Retailers, who fought for the rule, complained about it after it went into effect, arguing that the Federal Reserve effectively undercut the rule's purpose by setting the cap on swipe fees too high to have the intended effect. They unsuccessfully challenged the Fed's final rule through the court system.
The Richmond Fed's report should be a "wake-up call" for the Fed, said Lyle Beckwith, senior vice president of government relations for the National Association of convenience Stores.
"Ninety percent of merchants having their fees stay the same or go up makes no sense when Congress recognized that the price-fixed fees were too high already," Beckwith said in a statement.
The rule was written by the Fed's Board of Governors in Washington, not the Richmond regional bank.