Merchants And Banks Trade Barbs On Durbin

Shockwaves ripped through the financial world on July 31 when U.S. District Court Judge Richard Leon rejected as too low the caps on swipe fees adopted by the Fed to comply with the Durbin Amendment.

Without a clear next step, there’s widespread confusion as to what will stem from the judge’s rejection of the 21-cent cap on debit card transactions.

For a look at what merchants and banks are predicting as the outcome of this ruling, we’ve compiled voices from varied stakeholders that are likely to be affected. 

What Merchants Are Saying

Merchants had the most to gain from lower interchange fees, and have long trumpeted that such a move would favorably affect two demographics: small business owners and consumers.

As a result, many commentators in the retail industry were enthusiastic about the ruling, implying that the decision brought common sense back to a discussion that had favored major banks.

Here are the major organizations that have commented on the issue thus far:

“From the very beginning, retailers and restaurants knew the Federal Reserve Board of Governors had grossly misapplied the swipe fee law, also known as the Durbin Amendment,” Mallory Duncan, the senior vice president of the National Retail Federation (NRF), said in a statement published on the NRF website on July 31. “They failed to heed Congress’ call to set fee standards that were ‘reasonable’ and ‘proportional’ to the actual cost of a transaction.” 

Duncan went on to discuss how the Fed handled the original recommendations.

“The Fed’s 2011 decision to bend to the lobbying by the big banks and card giants cost small business and consumers tens of billions of dollars and did not do enough to rein in the anti-competitive, anti-consumer practices of Visa and MasterCard,” NACS’ Senior Vice President of government relations, Lyle Beckwith said.

Click here to view the full NACS statement.

Senator Dick Durbin said, “Today’s decision by the Federal District Court is a victory for consumers and small business around the country and will lead to lower interchange rates for billions of debit card transactions each year.”

Durbin went on to detail how the Fed did not go far enough to rein in anti-competitive practices in its 2011 ruling.

The National Restaurant Association did not comment on the results of the decision, but did issue a statement about the amendment’s review when it was in progress.

“We are extremely supportive of additional efforts to increase competition and transparency on all consumer payments, as well as efforts to create a more fair and level playing field for both merchants and consumers,” Scott DeFife, the NRA’s executive vice president of policy and government affairs, said on July 26 in a statement on the organization’s website.

What Banks Are Saying

For financial institutions, the mood was more subdued. These companies now need to clamor to uncover additional means of revenue through higher fees for already unhappy customers or lower their profits and face unhappy shareholders or both.

Banks argued that the ruling was blatantly in favor of merchants, who they said would be the only players to gain from the announcement.

As such, number of major banking associations have issued concerned statements on the decision:

“The price controls enacted as a result of the Durbin Amendment served one purpose – further lining the pockets of our nation’s big-box retailers at their own customers’ expense. It was – and still is – all about trying to help retailers increase profit margins while providing no real benefit to consumers,” Frank Keating, CEO of the American Bankers Association (ABA), said.

Keating also said that the ABA was “deeply disappointed in the decision” when detailing its potential effects.”.

The National Association of Federal Credit Unions (NAFCU) agreed with the ABA in its statement.

“NAFCU has maintained, and continues to maintain, that the Fed’s rules on debit interchange fee standards and network exclusivity are reasonable and in keeping with its own authority under the law,” the organization’s president of regulatory affairs, Carrie Hunt, said in a statement. “As it stands, the Court’s ruling will have an irreparable, detrimental impact on credit unions’ ability to ensure their members receive the services they need.”

Further, Hunt said that the NAFCU is reviewing the decision in order to determine its next steps.

The Independent Community Bankers of America (ICBA) echoed the concerns mentioned above.

“This is an extraordinary decision that will have major repercussions for customers of both small and large financial institutions,” Chris Matthews, a ICBA spokesman, said in a release. “The Fed’s rule was already causing consumer harm and now it looks like it will only get worse. If the past is any indication, the merchants will add even more to their $6 billion windfall, and consumers will still see none of the promised benefits.”

Richard Hunt, CEO and president of the Consumer Bankers Association, agreed with this sentiment. 

“This new ruling will create even more chaos for consumers and small banks. Congress ought to save families from this uncertainty by repealing this government mandated price-fixing,” Hunt said in a statement.

Hunt implored for a return to free-market principles, citing the proposed government ban on extra-large sodas in New York.

The Durbin Amendment: Two Years Later

For colorful, visual retrospectives on the Durbin Amendment, take a stroll down memory lane with “Debit Cards, The Durbin Amendment and You” and “How The Durbin Amendment Led To Massive Political Controversy,” two great infographics that illustrate how far we’ve come in the ongoing debate.