Sen. Durbin, Bankers Criticize Fed Rule

The Federal Reserve’s final rule implementing the Durbin Amendment has been criticized in two separate briefs submitted to the U.S. District Court in Washington D.C.  The court is mulling an initiative to reverse the rule, which reduced debit card  interchange fees by half. Sen. Richard Durbin (D-Ill.), who authored the Durbin Amendment, says the Federal Reserve’s final rule goes beyond the board’s authority, misconstrues his views, and inappropriately enacts the amendment’s network exclusivity provision. Meanwhile, a group of financial institutions argued that the rule hurts consumers and financial institutions unfairly while greatly benefiting merchants. The Durbin Amendment instructs the Federal Reserve to determine what constitutes “reasonable and proportional” debit card interchange fees in relation to issuers’ costs. The Federal Reserve opted to cut the interchange rate for debit cards approximately in half to 21 cents, in addition to a small allowance for fraud prevention. Merchants accuse the Federal Reserve of creating new categories of costs that are not mentioned in the amendment itself but are included in interchange calculations. They also note that debit card issuers are allowed to include fraud losses in fraud-related costs when the amendment only allows issuers to collect for fraud prevention.

From “Sen. Durbin, Bankers Criticize Fed Rule”

Merchants: Durbin Rule Starting To Pay Off

NEW YORK (MainStreet) – Students of the “law of unintended consequences” were anxious after Congress passed the “Durbin Amendment,” a provision of the Dodd-Frank Wall Street Reform Bill of 2010.

A last-minute addition to the bill, the Durbin Amendment capped the amount of interchange fees card carriers could charge merchants and retailers.

In essence, the Durbin Amendment, which took effect on Oct. 1, cut the rate retailers pay for debit card transactions by 50% (in industry terms, those fees are also called ‘swipe” fees).
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Some consumer advocates feared that consumers would bear the brunt of the bill. Given the financial laws of nature, banks would surely make up the difference lost in other service areas, like cutting free checking services, or eliminating debit and credit card rewards programs.

But one professional group with a horse in the race says that just isn’t so.

The Washington, D.C-based Merchants Payments Coalition released a position paper today, citing data from a USA Today article that indicates consumers may be getting the best of the deal in a post-Durbin world.

Calling some allegations about heavy consumer costs “myths” associated with “hidden and exorbitant” swipe fees, the coalition says consumers are at the front of the line in beneficiaries from the Durbin Amendment.

“First, consumers are saving from debit reform,” says the association. “Public reports for America’s largest retailers show that operating margins fell in the fourth quarter of 2011, when the Durbin Amendment to the Dodd-Frank financial reform law reduced debit card fees. That means those retailers were passing along any savings they might have, and then some. And some companies are giving discounts specifically for using debit cards, including, among others, Ikea, Nice N’ Easy Grocery Shoppes and some Exxon and Arco stations.”

The group says, despite some anxieties among banking consumers, free checking is not only not going away, it’s growing in numbers. The association says that more banks are offering free checking accounts to customers than before Oct. 1, when Durbin kicked into gear (with 39% of banks offering free checking compared to 35% before the amendment).

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