Senator Dick Durbin’s changes to the Wall Street Reform & Consumer Protection Act is an example of unnecessary government regulations. But despite its long-term toll on debit cards, a cohort of lawmakers now plan to cover credit cards under the Durbin Amendment.
Continued compliance to this poorly-structured policy is understandable in the absence of better regulation. However, extending it to credit cards will make lending more difficult for microbusiness and people, and do away with card rewards and promotions reducing the consumer’s choices significantly. In all honesty, it does not make sense to extend a regulation that hasn’t worked since its birth.
The Durbin amendment limits the fees that specific banks & credit unions enjoy in debit card payments. These charges include the cost of completing a transaction and a security amount to cover fraud risks. This amendment and the Federal Reserve policy that led to its inception is a scheme to regulate prices.
And like all price-control laws, the Durbin amendment hurts all the parties involved, except the group it intends to help–and who are these? The big box retail brands.
Still, we have turned blind eyes to the harmful effects of price control on the economy as a whole. Everyone including shoppers, banks, credit unions and any retailer that isn’t a big box store suffers losses under this policy.
The Durbin amendment was implemented to reduce the cost of debit card transactions for merchants so they would reduce prices on shoppers but this never came to pass. In essence, most merchants across most industries either maintained or increased costs on customers after the policy got underway.
According to a study posted in Richmondfed.org, even with the fee limits in place, only a meager portion, around 1 percent of merchants, lowered the prices for shoppers. In comparison, almost 22 percent of the merchants raised costs for consumers. With such discouraging digits, the idea that customers have enjoyed price cuts thanks to the Durbin policy is just misguided.
Other analyses show debit-issuing banks & credit unions have recorded losses worth billions of dollars in revenue thanks to this oppressive federal law.
For example, one collaborative study by the University of Pennsylvania and Georgetown University found a 25 percent drop in the interchange revenue for banks included in the Durbin—this represented a $6.5 billion yearly dip in revenue.
Lawmakers should encourage fair competition in payments by getting rid of unnecessary regulations, not developing more. A free marketplace encourages rivalry and triggers price cuts while increasing customer choice. As such, extending the Durbin policy to credit cards will only be counterproductive.
Author Bio: Blair Thomas has been a music producer, bouncer, screenwriter and for over a decade has been the Co-Founder of eMerchantBroker, the highest-rated high risk merchant account processor in the country. He has climbed in the Himalayas, survived a hurricane, and lived on a gold mine in the Yukon. He currently calls Thailand his home with a lifetime collection of his favorite books.