The Durbin Amendment: Myth vs. Reality

Co-authored by Howard H. Chang, and Margaret Weichert

May 16, 2011

Analysis of Claims in Support of the “Durbin Amendment” to Regulate Debit Card Interchange Fees

Section 1075 of the Dodd Frank Act requires the Board of Governors of the Federal Reserve System to regulate the debit card industry. Unlike most of the voluminous financial reform bill this seven-page section was adopted with virtually no debate, discussion or study. Not surprisingly as the so-called “Durbin Amendment” has undergone scrutiny, it has become apparent to consumer groups, banking regulators, economists, and many others that this hasty effort is likely to harm consumers, small business, small banks and credit unions, and many others. In forcing the Federal Reserve Board to take on the type of cost-based price regulation that commentators have cautioned against, including the General Accountability Office and a prior research paper by Fed staff economists, Congress forgot the many lessons learned that price controls eliminate the heart of free market competition, and harm consumers and innovation.

Senator Durbin, the largest retailers, and the merchant trade associations that sought federal intervention in the free market have presented several arguments in favor of price controls.  Their claims are false, unsupported or misleading.

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Mr. Evans is Chairman of Global Economics Group, Lecturer at University of Chicago Law School and Visiting Professor at University College London. He is the author of “Paying with Plastic.”  Mr. Chang is a Principal with Global Economics Group, and Ms. Weichert is a Principal at Market Platform Dynamics. The authors would like to thank Visa Inc. for funding the research and writing for this paper.  The views expressed in this paper are those of the authors and do not necessarily reflect those of Visa or any organization with which the authors are affiliated.