Digital Transactions Authoritative, insightful and timely information for payments professionals
By John Stewart
@DTPaymentNews
The Republican lawmakers who pushed a bill through the House of Representatives last week to radically reform the Dodd-Frank Act did so after abandoning a provision that would have repealed the Act’s Durbin Amendment. But they made it clear in floor debate on Thursday that they haven’t given up on scrapping that law, which caps debit card interchange for big banks and mandates debit-routing choice for merchants.
The amendment, proposed by Sen. Richard Durbin, D-Ill., was a last-minute add-on in 2010 when the Dodd-Frank Wall Street Reform and Consumer Protection Act was rumbling its way through a Democratic-controlled Congress in reaction to the financial meltdown that began in 2008 and led to the Great Recession. Among other legacies of Dodd-Frank is the Consumer Financial Protection Bureau, which is also in the cross-hairs of the Republican majority in Congress.
Dodd-Frank delegated the job of interpreting the Durbin Amendment to the Federal Reserve, which in 2011 imposed a debit-interchange ceiling of 21 cents per transaction, plus 0.05% for fraud losses and another penny for fraud-prevention costs. The ceiling applies only to interchange going to banks with $10 billion or more in assets.
However, the law also required all issuers, regardless of size, to refrain from interfering in merchants’ choice of networks for debit transactions. And to make sure they had a choice, it also mandated that issuers support at least two unaffiliated networks for debit routing.
An effort to include Durbin repeal in the Financial Choice Act, which passed the House Thursday, failed late last month even though the House Financial Services Committee had approved it. The Financial Choice Act, pushed by Financial Services Committee chair Jeb Hensarling, R-Texas, now goes to the Senate as an effort to roll back many of Dodd-Frank’s provisions.
But during debate on the Financial Choice bill on Thursday, Hensarling and his allies made it plain the decision to strip out Durbin repeal was not the final act in this debit drama. “Congress should not be in the business of price fixing,” said Blaine Luetkemeyer, R-Mo., according to Congressional Record. “Price controls will never work and will always have negative consequences. I am committed to returning to free-market principles that deliver real results for consumers.”
Much of the comment on Durbin, which consumed a very small part of the hours-long debate, centered on what the Congressmen see as Durbin’s economic impact. “The Durbin Amendment has not helped consumers and, in fact, has hurt them,” said Luetkemeyer. “It has hurt small banks and credit unions. The only entities that have benefited are the retailers, who, despite their promises to Congress, have not lowered cost, and some studies even show that they have increased cost.” Merchants have responded to this argument in the past by pointing out that the Fed set the Durbin interchange caps too high, leaving less room to return savings to consumers.
While the debate over the years regarding the cost to accept electronic transactions has pitted merchants against banks, Hensarling argued that argument ended up in the wrong venue in 2010. “In a larger sense, what we have is a legal dispute between two parties,” he said. “This is an issue that belongs in the courts, not Congress, which is why we sought to repeal the Durbin Amendment.”
Hensarling stressed that the fight for repeal isn’t over. “I remain hopeful that Congress will correct this mistake, and I will work towards that goal in the future,” he said.
Republican leaders stripped out the repeal provision May 24 after a nose-count failed to show enough support for it as part of the larger Financial Choice bill .
