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CFPB under continued fire Durbin repeal not likely

When Congress created the CFPB, its principal concern Another controversial provision of the Financial CHOICE
was the regulation of nonbank providers of financial Act seeks to repeal the Dodd-Frank Act's Durbin
services, such as mortgage servicers, payday lenders and Amendment, which caps allowable interchange for debit
debt collectors. It also shifted to the bureau enforcement card payments. Washington insiders say the chances of
authority for consumer-protection laws that previously that provision making it through to any final legislative
had been the responsibility of the Federal Reserve. package are slim, as lawmakers risk constituent blowback.
In an April interview with Bloomberg News, Rep. Jim
Pending new rules governing prepaid debit cards are a Himes, D-Conn., said, "I'm being forced to choose between
direct result of that shift. Those rules extend many of the the competing interests of two big industries."
disclosure requirements and other consumer protections
applied to credit and traditional debit cards under The Durbin Amendment itself was the result of a
Regulations E (EFT) and Z (truth in lending) to prepaid compromise between the same two competing interests:
debit card products. The rules would limit cardholder merchants wanted interchange caps on credit and debit
liability when prepaid cards are reported lost or stolen, cards; banks wanted none. Lobbyists representing
for example, and require card issuers to assess cardholder merchants coined the phrase "swipe fees" to describe
creditworthiness when providing overdraft protection interchange and rallied public support around the notion
options. And they include detailed requirements for pre- that lower interchange would result in lower costs to
and post-card purchase disclosure forms. consumers.

The CFPB's prepaid rules were slated to take effect The National Retail Federation recently claimed retailers
in October 2017, but the bureau recently delayed saved $8.5 billion in the first year under debit interchange
implementation by six months. It said the extension would caps and that close to $6 billion of the savings was passed
give prepaid card companies more time to prepare, as well along to consumers. But a 2015 study by the Federal
as provide more time to review controversial provisions. Reserve Bank of Richmond suggested otherwise. That
Some of the most vocal opponents of the rules are TSYS survey collected information on interchange and pricing
and its NetSpend prepaid card unit and the Electronic from 420 merchants spanning 26 sectors and revealed
Transactions Association, which has accused the CFPB of there were no discernable price changes at the vast
"regulatory overreach that harms innovation." majority (77.2 percent), very few merchants (1.2 percent)
reduced prices and 21.6 percent actually raised prices
In addition to writing new rules, the CFPB has used after debit caps were imposed. The Richmond Fed also
its enforcement authority to come down on card and uncovered an "unintended consequence of the Durbin
payment processing companies. In February 2017, the Amendment" was that interchange on small-dollar debit
consumer watchdog agency ordered Mastercard and the card transactions rose as networks eliminated discounts
prepaid card company UniRush LLC to pay $10 million intended to encourage card acceptance for small-dollar
in restitution and $3 million in civil penalties because of card payments.
service glitches that blocked thousands of cardholders
from accessing funds for several days in 2015. Using the Richmond Fed's data, lobbyists representing
banks and credit unions complain the caps so far have
In 2016, the bureau went after Fargo, N.D.-based payment siphoned $42 billion in revenues from their members
processor Intercept Corp. for facilitating fraud against and driven up compliance costs even at small financial
consumer checking accounts. According to a complaint institutions, which are supposed to be exempt from the
filed in federal court, "perfunctory due diligence" on the caps. In a May 1, 2017, op-ed piece published by Morning
part of Intercept allowed fraudsters to withdraw millions Consult, leaders of trade groups representing banks, credit
of dollars from the accounts of unwitting consumers. unions and card companies urged lawmakers to support
repeal of the Durbin Amendment.
"Companies cannot turn a blind eye to wrongdoing when
they process payments from consumer banking accounts "In the six years since Congress passed the Durbin
on behalf of clients who break the law," CFPB Director Amendment, we have gathered ample evidence to prove
Richard Cordray said at the time. the law did not meet its stated goal of lowering prices," the
group stated. "Instead, it has needlessly imposed added
The previous year the CFPB named Global Payments Inc. costs on lenders, borrowers and consumers alike."
and three ISOs as co-defendants in what it alleged in federal
court documents was a bogus debt collection scheme. The
four companies processed card transactions submitted
by fraudsters despite numerous red flags including an
onslaught of consumers disputing transactions, according
to the CFPB's complaint.

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