By Jeff Tassey
Twelve years ago, special interest groups that represent big-box retailers like Wal-Mart and Amazon scored a massive victory for their bottom lines. They successfully lobbied their friends in Congress to pass an amendment that imposed artificial price controls through outright rate caps and back door routing requirements, significantly lowering the debit interchange fees that merchants pay to use debit card networks. This amendment, known as the Durbin Amendment, transferred more than $106 billion to America’s largest retailers over the past decade.
Now, mega-retailers and their allies are heading back to Capitol Hill, asking for yet another government handout. These groups see the pandemic as a great opportunity to try and convince members of Congress that retailers need to increase their record profits through additional price caps and other restrictions on credit card interchange fees.
The reality is that this misguided policy would make more money for big retailers and merchants at the expense of everyone else, including consumers, small businesses, community banks, and credit unions. This isn’t speculation. We have over a decade of research and data that prove the most vulnerable in our communities will suffer the most if mega-retailers are able to expand the Durbin Amendment.
Here are the top three things everyone should know about the retailers push to expand the Durbin Amendment this year:
Big-box retailers did not keep their promise of lowering prices for consumers:
Big-box retailers promised consumers that they would benefit from the Durbin Amendment through lower prices at the checkout counter. That’s not what has happened. The Richmond Federal Reserve found that more than three-fourths of retailers did not change their prices post-Durbin. Indeed, one in four merchants actually raised prices. Big retailers have proven that they will hoard the wealth instead of lowering prices. In addition to harming consumers, Fed data shows that the Durbin Amendment has failed to help most merchants, particularly small merchants that primarily sell less-expensive goods.
The Durbin Amendment resulted in America’s unbanked population increasing by 1 million people:
A 2014 study by George Mason University found that the Durbin Amendment increased the unbanked population by 1 million Americans — primarily in minority and low-income communities. As a result of the lost interchange revenue due to the Durbin Amendment’s debit routing regulations, small-town banks and credit unions were forced to reduce services in order to survive. Low-income consumers also lost access to valuable and popular services, such as debit card reward programs. Economic experts agree that extending the Durbin Amendment to credit card transactions will have an even more devastating impact on small financial institutions while undermining their ability to serve small businesses and low-income families in their communities.
The Durbin Amendment undermines critical investments in fraud protection:
Unlike merchants, financial institutions do not simply pocket interchange revenues. Instead, they invest in developing the latest security technologies, such as real-time predictive analytics, EMV, tokenization, biometrics, and end-to-end encryption to help keep consumers’ data safe. Additionally, electronic payments have helped keep thousands of Main Street stores open for business and serving their communities during the pandemic through advances in secure, contactless payment options. However, the Durbin Amendment stripped resources away from these critical investments and resulted in reduced fraud prevention and detection. The Durbin Amendment’s debit routing regulations shifted billions of dollars of consumer spending to less secure, less innovative, and higher-risk transactions that make America’s payment system worse and put consumers in a vulnerable position. Expanding the Durbin Amendment will lead to even more private consumer information being made available to foreign networks in countries like China and Russia.
Every member of Congress should take a long hard look at the devastating results that the Durbin Amendment has inflicted—on consumers, small businesses, and small financial institutions—and ask themselves, “do big-box retailers really need another government handout?”
The answer is an overwhelming “no”.
Despite the failures of the Durbin Amendment, the electronic payments industry is healthy, competitive, and innovative–cultivating mutually beneficial relationships that provide real value for small business owners and their customers. Lawmakers must reject the calls from retailers and merchants to do their bidding at the expense of everyone else.
Jeff Tassey is the Chairman of the Board of the Electronic Payments Coalition