Thursday , November 21, 2024

The Durbin Amendment’s Early Toll on Big Banks: $1.1 Billion And Counting

 

Ouch. The Durbin Amendment, which slapped debit card interchange price controls on big banks beginning Oct.1, cost some of the nation’s largest financial institutions more than $1.1 billion in reduced fourth-quarter revenue.

Digital Transactions News calculated that figure based on what seven national or large regional banks disclosed over the past week about Durbin’s impacts in their fourth-quarter earnings reports and associated filings, what their top executives said at conference calls with analysts, or by making estimates based on guidance in the reports.

Just two money-center banks monitored by Digital Transactions News have absorbed more than 70% of the Durbin Amendment’s hit so far. The largest debit card issuer, Charlotte, N.C.-based Bank of America Corp., on Thursday said Durbin had a $430 million impact on its fourth-quarter financials. And San Francisco-based Wells Fargo & Co. on Tuesday said debit interchange declined by $365 million during the quarter from the year-earlier period’s total.

Digital Transactions News calculates the cost to New York City-based JPMorgan Chase & Co. at $120.4 million and possibly more based on the bank’s reported $1.6 billion in consumer and business banking non-interest revenue, which Chase said was 7% lower than a year earlier but partially offset by higher deposit fees. Another money-center bank, Citigroup Inc., reported its fourth-quarter financials on Tuesday but didn’t discuss debit cards.

At Minneapolis-based U.S. Bancorp, chief financial officer Andrew Cecere said during the bank’s fourth-quarter earnings call on Wednesday that the Durbin impact was $77 million. The amendment cost Pittsburgh-based PNC Financial Services Group Inc. $75 million, according to its earnings report released Wednesday. Winston-Salem, N.C.-based BB&T Corp. said on Thursday non-interest income declined by $41 million primarily due to lower debit card interchange.

Sponsored by U.S. Sen. Richard Durbin, D-Ill., the so-called Durbin Amendment became part of 2010’s Dodd-Frank Act and ordered the Federal Reserve Board to set “reasonable and proportional” debit card interchange limits on financial institutions with more than $10 billion in assets. The Fed’s final rule issued last June set a cap of 21 cents plus 0.05% of the sale in addition to a pending 1 cent for fraud control. That amounts to an effective cut of about 45% from the 44 cents the average debit card transaction produced in interchange pre-Durbin.

Some banks, however, have more at stake in their debit card programs than others. Consultant Eric Grover, principal of Minden, Nev.-based Intrepid Ventures, says BofA and Wells are losing about half their debit revenues to the new regulations. The controls will cause them and other banks to cut costs further, he predicts. “Rewards for debit will be largely a thing of the past,” he says.

And despite BofA’s and other banks’ hasty retreats from planned debit card usage fees in the wake of widespread consumer opposition, Grover says banks will continue to hunt subtly for new revenues to compensate for lost interchange. “They’re going to be looking for new fees that aren’t so visible as to not trigger a firestorm,” he says.

Spokespersons for two retail trade groups did not return Digital Transactions News calls for comment about the bank reports by late Thursday.

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