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How will President Barack Obama’s reelection impact the payments industry?
The answer is complex, of course. But among the most immediate and obvious effects is that the Dodd-Frank Act, and, more specifically, its Durbin amendment, is here to stay.
Nancy Folbre, an economics professor at the University of Massachusetts, Amherst, covered Durbin politics in a pre-election piece for the New York Times. She delves into the history of the battle over interchange fees, highlights the inherent conflict between merchants, small banks and large banks and details where current negotiations stand.
A quick summary of the last point: even though the defendants – namely Visa and MasterCard – agreed to a $7.25 billion settlement last July – the largest ever for a case filed under the Sherman Antitrust Act – merchants are not satisfied. Under the settlement, there’s no actual change to swipe fee pricing, and future lawsuits are prohibited, leading prominent merchant groups, such as the NRF, to fiercely combat the agreement.
A judge has not formally ruled on the settlement yet, although this weekend, U.S. District Court Judge John Gleeson did grant its preliminary approval. But while Folbre notes its importance, she addresses the larger stakes at play.
“The settlement has not yet been finalized, and public opinion could help build pressure to renegotiate it. In the longer run, however, the outcome will be shaped by legislative efforts,” Folbre writes.
“This week’s elections will have a significant impact. While most Democrats favor financial regulation, most Republicans oppose it. R. Glenn Hubbard, dean of Columbia Business School and one of Mitt Romney’s most influential economic advisers, favors dismantling Dodd-Frank altogether.”
We know now that the latter scenario is not going to occur, so who stands to benefit and lose the most from the election?
According to Folbre, the more regulation, the better for merchants, meaning card companies are likely unhappy with last week’s election results.
“Banks that are ‘too big to fail’ are also big enough to bully smaller businesses. Since the early 1970s, the five largest banking institutions in the United States have tripled their share of financial assets from 17 percent to 52 percent,” she states.
“Deregulation would definitely leave credit card companies with the upper hand.”
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