Progressive Policy Institute Report Serves as a Stop Sign for Congress: Card Mandates Hurt Consumers

WASHINGTON, D.C. – A new report from the Progressive Policy Institute’s Robert Shapiro, titled “The Unanticipated Costs and Consequences of Federal Reserve Regulation of Debit Card Interchange Fees,” concludes the 2011 Durbin Amendment failed to deliver its promised savings to consumers, instead resulting in higher banking costs, fewer rewards, and reduced access to financial services for low-income Americans.

The report serves as a stark warning against current legislative efforts, specifically the Durbin-Marshall Credit Card Mandates, that risk repeating the same mistakes—ultimately driving up costs and limiting access to credit for American consumers and small businesses. According to the findings, expanding these mandates to the credit card market would likely mirror the failures of debit regulation: shifting costs onto everyday families while padding the profits of giant corporate retailers.

“We have been down this road before, and it didn’t end well,” said EPC Executive Chairman Richard Hunt. “When Washington imposed price controls on debit cards, big retailers pocketed the savings while consumers and small mom and pop businesses faced higher costs. If Congress ignores these lessons by placing similar mandates on your credit card, they aren’t just repeating a mistake – they are actively choosing to harm consumers to benefit corporate mega-stores.”

On the Durbin-Marshall mandates specifically, the report found Durbin-Marshall “could also result in higher interest rate charges for consumers with unpaid credit card balances. Many merchants also would bear the costs of adapting their systems and practices to engage with an alternative network, and there is no evidence that merchants would pass along any net interchange fee savings in lower prices … Small networks also have fewer resources to invest in advanced payment protection technologies on an ongoing basis, potentially raising new security issues that could incline merchants to prefer the large, established networks … Based on the record of Regulation II, the [Durbin-Marshall] risks substantial harm to many consumers by raising their banking costs and lowering the value they derive from using credit cards.”

Key Findings from the PPI report include:

• Majority of savings were NOT passed to consumers: one year after the debit cap took effect, only 1.2% of merchants passed savings to consumers, while 21.6% raised their prices.
• Mom and Pop Shops lost out: giant national retail chains were the primary beneficiaries of any savings, accounting for 73% of all purchases.
• No evidence of benefits: after a decade of data, the authors found “little evidence” of any consumer benefit, concluding that any theoretical savings for Americans were “unmeasurable.”
• Unintended consequences: The cap led to unanticipated increases in monthly bank maintenance fees and a sharp decline in the availability of free checking accounts.
• New barriers for the Unbanked: Higher fees created new barriers for lower-income households, undermining financial access and equity.

“Protecting the integrity of our payment networks from misguided price controls is a matter of economic fairness,” Hunt added. “This report should be a ‘stop’ sign for Congress. The proposed credit card mandates would jeopardize the very rewards and cash-back programs that millions of Americans rely on.”

The report concludes that the current proposal, expected to be a focal point in the current Congress, poses a substantial risk to the electronic payments ecosystem. PPI’s analysts argue that true competition is not achieved by mimicking the failed Durbin Amendment’s regulation of debit card interchange fees, but by protecting the systems that provide security, fraud protection, and tangible value to the American consumer.

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Note: The report’s findings are particularly notable given that the author, Robert Shapiro, published in 2013 a merchant-supported study claiming that the Durbin Amendment delivered significant savings to consumers—a conclusion that directly contradicts his current findings. Shapiro’s most recent work explicitly reverses that position, representing a clear shift in the author’s assessment and aligning with EPC’s ongoing concerns that mandating credit card interchange fees will harm consumers.