A Divided Front Over Durbin

With Republicans in control of both the Senate and the House of Representatives, and a Republican in the White House, banks bigger than $10 billion in assets are licking their chops. That’s because their long campaign to get rid of the Durbin Amendment to the 2010 Dodd-Frank Act now actually has a chance of success.

The momentum for repeal began building in January, just about as soon as Donald Trump was inaugurated as President, and Republicans eager to scale back Obama-era regulation are said to be more than sympathetic to the idea. Indeed, many are ready to scuttle all of Dodd-Frank, but that’s another story.

Lately, though, an interesting twist has developed.

Durbin is part price regulation and part transaction-routing regulation. The better-known part is the former, because its bluntness makes it easy to understand: It caps the interchange fee big banks can collect on debit card transactions. The routing rule, which applies to all banks, is a little more complicated. In essence, though, it requires that merchants have a choice of at least two unaffiliated debit networks. That means issuers must enable each debit card to access, say, Visa on the one hand and Shazam on the other. Before Durbin, banks were rather inclined to go with, say, Visa on the one hand and Interlink, which Visa owns, on the other.

The big networks and the big banks are no more enamored of the routing regulation than they are of the pricing cap. So they’d just as soon repeal the whole of Durbin, and that’s just what big-bank trade groups like the Financial Services Roundtable are calling for. But this is where that interesting twist comes in. Not all networks agree with wholesale repeal of Durbin.

Iowa-based Shazam, for instance, is one of a handful of surviving electronic-funds transfer networks that serve banks and merchants throughout the country. Many of these clients are community banks and many of the merchants are neighborhood stores. Shazam would like to scrap the pricing caps, yes, but would like to retain the routing requirement, thank you very much.

That’s because, without the routing rule, Shazam says its community banks and credit unions would lose a valuable lever to control their network costs. Big banks enjoy that leverage by dint of their size. So the routing rule levels the playing field.

No telling just yet how this little drama will play out. Shazam makes a good case but lacks the clout of Visa and JPMorgan Chase. But regardless of the outcome, it’s worth recalling that the networks and banks constitute something less than a united front on the Durbin question.

—John Stewart, Editor, john@digitaltransactions.net