In Washington, sometimes the facts get in the way of a good story when it comes to advocating for changes to public policy. Eventually, the facts have the pesky ability to expose the cold hard truth of a well-spun fairy tale. This is what happened when price controls were enacted on debit card transactions and consumers suffered as a result.
An amendment authored by Senator Durbin was attached to Dodd-Frank and passed in the dead of night with little scrutiny or debate. The provision, which dictates price controls on debit card transactions, was hailed as a consumer benefit because advocates said that the money it generated would go directly back into the pockets of hardworking Americans.
However, these claims of consumers winning the day have not yet occurred and if big box retailers have their way, they will never see savings promised to them.
We were reminded of this on April 5th during a Senate Banking Committee hearing to assess the effects of consumer finance regulations. One witness, George Mason University Law Professor Todd Zywicki, engaged in a lengthy discussion and pulled back the curtain on the false claims of the Durbin amendment.
Zywicki testified to what we have already known, but what retailers and merchants have been loathe to admit: There is zero evidence that any savings have been passed on at all from retailers to consumers. Instead, the retailers have pocketed an additional $36 billion in profits since the enactment of the Durbin amendment and chose not to pass on the savings to benefit consumers. Zywicki is not alone in his assessment:
A recent Richmond Federal Reserve survey concluded what common sense and empirical evidence tell us: “that few merchants are found to reduce prices or debit restrictions as debit costs decrease”
A 2015 survey of 2,000 consumers conducted by Phoenix Market International offers confirmation from 92 percent of respondents that prices have either stayed the same or risen over the previous year.
To give the devil its due, and point out a cruel twist of irony, the Durbin Amendment can claim at least one thing it has passed on to consumers.
You see, with the enactment of the amendment, bank revenue decreased by billions of dollars — resources that were being used to provide free checking and other discounted services to customers. Those lost resources have in turn led to the loss of free checking for many customers and the increase of bank fees for others. As Zywicki further explains:
“Before the Durbin Amendment went into effect, 76 percent of bank accounts in America were eligible for free checking. Today, that number has been reduced to 38 percent. It’s been passed on a second way, which is that the bank fees that people pay on a monthly basis have doubled during that period. So you’ve seen a reduction in free checking and a doubling of bank fees.”
Even more troubling is that the end of free checking coupled with increased fees has affected the least among us the most. Many low-income families are unable to afford the new fees imposed on checking accounts and debit cards. And because these families still need to pay bills, they are often forced to turn to riskier methods of credit and payment such as payday loans, auto title loans and overdraft protection.
We all want to believe in happy endings, but four years after the enactment of the Durbin Amendment, the only ones smiling are the big box retailers and the multi-national companies reaping billions of dollars in profit. For the rest of us, who were not given the savings we have been promised, or worse are now forced to pay more, this fairy tale has turned into a consumer nightmare.
Molly Wilkinson is executive director of the Electronic Payments Coalition. The Electronic Payments Coalition (EPC) includes credit unions, community banks, and payment card networks that move electronic payments quickly and securely between millions of merchants and millions of consumers across the globe. Thinking of submitting an op-ed to the Washington Examiner? Be sure to read our guidelines on submissions.
