Page 18 - GS221101

Views

interchange, as well as for allowing merchant choice in
Insider’sreport networks used to process debit cards. Durbin and other
supporters hoped the legislation would save merchants
on payments money and that some of the savings would be passed on
to consumers.

For covered FIs (those with $10 billion, or more, in assets)
debit interchange rates were capped at 21 cents plus 5 basis
points. The going debit interchange was 1 to 3 percent at
the time, so the revenue loss was significant. The Electronic
Durbin wants credit billion in interchange revenues in the first 10 years under
Payments Coalition estimated debit card issuers lost $106
Durbin.
card routing rules A 2015 study by the Federal Reserve Bank of Richmond,

however, found little evidence merchants were passing
By Patti Murphy along those savings to customers. In fact, 21.6 percent of
merchants surveyed by the Richmond Fed had actually
enator Richard Durbin, the Illinois Democrat raised prices, while 77.2 percent kept prices the same.
who authored the 2010 legislation known as
the Durbin Amendment, has a plan for upend- Of course, it's tough to quantify merchant savings given
S ing credit card processing. The Credit Card the array of interchange rates and pricing structures. "The
Competition Act, authored by Senators Durbin and Roger regulation assumes everybody is on interchange-plus," said
Marshall, R-Kan., would require that every merchant get Elaina Smith, COO at Secure Bancard. "But interchange is a
to choose which network processes its credit card pay- very narrow piece of card acceptance costs."
ments, and only one of those networks can be operated by
Mastercard or Visa. Smith noted that merchants on flat pricing, for example,
didn't see any changes post Durbin, while those with mostly
The bill was introduced in July 2022, with Sen. Durbin small tickets saw costs soar. At 22 cents, the interchange on
asserting it would "inject real competition into the credit a $5 cup of coffee works out to about 4 percent.
card network market, which is dominated by the Visa-
Mastercard duopoly." Many consumers also took financial hits when FIs raised
account fees and scrapped rewards programs to recoup lost
In October, Senators Durbin and Marshall tried fast- interchange revenue. A 2012 study by the Discover-owned
tracking the legislation by appending it as an amendment EFT network Pulse, for example, found half of FIs covered
to a massive defense spending measure. While that plan by the law had ended their debit card rewards programs in
was scuttled, it likely is not a once-and-done legislative the first year under Durbin caps.
maneuver. "[T]he threat of Durbin Amendment expansion Upsetting the Visa-Mastercard apple cart
remains," the Independent Community Bankers Association
said in a statement. That same defense spending bill is In recent letters to members of Congress, groups
slated for another vote later this month. representing all manner of FIs and payments companies
warned of a repeat performance of the Durbin aftershocks
A similar bipartisan bill was introduced in the House by if the Credit Card Competition Act becomes law. "This
Representatives by Peter Welch, D-Vt., and Lance Gooden, bill is not borne of real needs in the American payments
R-Texas. "For too long the credit card companies and the system. It's about Congress picking winners and losers,"
nation's top financial institutions have collaborated to one coalition of financial services trade groups wrote to
sideline community banks and local retailers in Texas," members of the House.
Gooden said. He added that his backing of the bill fulfills
a "pledge to protect small businesses and ensure these James Huber, an attorney with Global Legal Law firm,
companies can no longer use their monopolistic power to doesn't discount that possibility. "Sen. Durbin has it out
crush their competition." for Visa and Mastercard. He thinks they're too big" to be
competitive, Huber said. That's why, he added, the Credit
But opponents argue that the bill will benefit the nation's Card Competition Act addresses network processing, with
largest retailers to the detriment of small businesses, the goal of driving down merchant fees.
financial institutions and ultimately consumers. And they
point to the Durbin Amendment as evidence. Retailers are ecstatic. The Merchants Payments Coalition
said it "would bring much-needed relief to retailers and
The Durbin Amendment, passed as part of comprehensive American consumers by simply requiring that Visa
financial reform legislation, called for capping debit card and Mastercard were no longer allowed to be exclusive

18