Controversy surrounding a new piece of legislation that would repeal and replace the 2010 Dodd-Frank Act has escalated tensions between merchant and payments industry advocates. House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, introduced the legislation, dubbed the Financial CHOICE (Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs) Act, in June 2016.
If passed, the bill would usher in a post-Dodd-Frank era marked by entrepreneurial spirit and sweeping democratic reforms, according to some payments analysts. Retailers, on the other hand, were swift to condemn the proposed legislation.
According to Hensarling, the Financial CHOICE Act, H.R. 5465, is designed to spur economic growth and is based on the following seven core principles:
On its surface, these ideals would seem to have wide appeal for both merchants and payments industry stakeholders. However, opponents argue that the bill contains additional, hidden agendas and "poison-pill language" designed to unfairly eliminate competition in the debit card segment.
The Electronic Payments Coalition and the Credit Union National Association have been vocal supporters of the newly released Financial CHOICE Act. The EPC represents credit unions, community banks, trade associations, payment card networks and banks within the payments industry. The trade association joined 51 state bankers associations that support repealing the Durbin Amendment, stating that "H.R. 5465 will finally eliminate the government-imposed price controls on debit card interchange, which has greatly harmed consumers and the banks that serve them."
The EPC determined that retailers derived approximately $8 billion in savings from payment product pricing controls mandated by the Dodd-Frank Wall Street Reform Act and Durbin Amendment, and these savings were not shared with consumers, as retailers had originally promised. The pricing controls have helped big-box retailers while ultimately harming downstream consumers, small banks and credit unions, the EPC stated in a June 7, 2016, press release.
"The Electronic Payments Coalition applauds Chairman Hensarling's vision and hard work on The Financial CHOICE Act, which provides commonsense reforms that promote economic growth for all Americans," stated EPC Executive Director Molly Wilkinson. "Of critical importance to the coalition is repealing the harmful federal price controls of the Durbin Amendment, and we look forward to working with the Chairman on ending this failed policy."
CUNA additionally noted that the reforms include an organizational restructure of the Consumer Financial Protection Bureau to a five-member commission and requiring federal regulators to note the size of the institutions in question when issuing rules. Proposed legislation that would have an impact of $100 million or more would need to be approved by Congress before being implemented, CUNA stated.
Although the Financial CHOICE Act is still in the drafting stage, CUNA representatives expressed enthusiasm for the measures, and stated it "will continue to monitor any additions or modifications to the package to ensure that the legislation contains meaningful regulatory relief for credit unions."
The Merchants Payments Coalition issued a statement June 24 condemning the Financial CHOICE Act. Chief among the MPC's concerns is the complaint that the bill is unfair to "small retailers, their employees and consumers in every congressional district in the country." The MPC went on to say that the bill would turn back reforms that had created a "freer market" by preventing bank card brands from price-fixing and colluding to charge higher fees to merchants when debit cards are used at the POS.
"Without debit reform's competition-enhancing standards, banks would be free to return to the days of unfettered price fixing," said Mallory Duncan, Chairman of the Merchants Payments Coalition and Senior Vice President and General Counsel for the National Retail Federation. "It's important to remember that despite the smokescreen the big banks put up, debit reform is an incontrovertible success and should be protected."
The MPC represents 2.7 million retailers, including restaurants, supermarkets, drug stores, convenience stores, gas stations and online merchants. The trade group has supported the Durbin Amendment's caps on debit card transaction fees and urged Main Street businesses to protest the bill's "poison-pill language" that leaves the debit card market without competition.
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