The debate continues on whether the Durbin Amendment to the Dodd-Frank Act of 2010 will boost the bottom line for merchants and translate into lower prices for consumers. According to the Merchants Payments Coalition, a strong advocate of debit interchange reform representing member associations that collectively serve about 2.7 million merchant members, the reform is working to bring lower prices to consumers and spur retail sales.
"The reform has worked as intended where it has reduced interchange fees," said Douglas Kantor, Counsel to the MPC and Partner at Steptoe & Johnson LLP. "What we're seeing, where those reductions are, is consumers are saving, business is better and banks, especially exempted banks, have done quite well and haven't had problems." He said many of the claims made by banks that interchange reform would be detrimental simply haven't panned out.
Kantor believes a problem persists because the Federal Reserve's final ruling varied from the proposed rule, which means the original intent of Congress may not have been fully implemented. "There were some problems with the way the Fed wrote the final rule, and so, on some smaller-dollar transactions, there aren't savings and, in some cases, have been increases," he said. "And that's a problem, but it's one that we're hoping the courts sort out."
Kantor said that transactions for which interchange fees were reduced have played out as the coalition expected. As an example, the MPC cited The Home Depot U.S.A. Inc., which has publicly stated interchange fees represent the company's third-highest operating cost and that it has reduced prices on over 3,000 products since Oct. 1, 2011, when the Durbin Amendment went into effect.
Stephen Holmes, Senior Manager, Corporate Communications for The Home Depot, said it's essential to keep everything in perspective because you can't draw a straight line from the Durbin Amendment to pricing. "We're lowering prices," Holmes said. "That's a normal part of our process. As a discount retailer, we're taking savings wherever we can get them and using that to give it back to our consumers."
Kantor agreed, stating, "What we have so far is anecdotal evidence. We don't have across-the-board evidence, but the anecdotal evidence you certainly saw for Home Depot, but you've also seen from major retailers, having compressed profit margins, and so that to the extent they're saving anything, it is passing through." Heavy retail discounting over the past several months has been good for everybody, he added.
Looking ahead, it appears the fight is not over yet for MPC and other retail organizations. Merchants continue to be vigilant about reining in operating costs in an economy that has not yet fully regained its footing. "The [debit] interchange fee is just a small component of what is happening," Kantor said. Lowering credit card fees may be next on the agenda for the MPC and similar organizations. About that issue, Kantor said, "We are always working on that effort."
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