The Durbin amendment: Three strikes and you should be out

The rules of baseball can be pretty simple, especially when it comes to “three strikes, you’re out.” That type of thinking shouldn’t be limited to baseball though; there are other places where these rules could apply—such as Washington.

If a law fails to live up to expectations, doesn’t benefit consumers, and harms small financial institutions, we should get rid of that policy. Yet, as the House demonstrated just weeks ago, that doesn’t always happen. When faced with the opportunity to end the Durbin amendment and bring relief to consumers, the House has removed repeal of the policy from the Financial CHOICE Act. The Durbin amendment—added to Dodd-Frank at the last minute, without a hearing or analysis of the rule’s impacts—has earned more than three strikes over the past six years it’s been law, yet Congress squandered an opportunity to relieve consumers from the burden they’ve been shouldering for years.

{mosads}Despite being unrelated to the financial crisis, the Durbin amendment allowed the government to intervene in the functioning free market to set price controls on debit interchange fees, which businesses pay to accept debit cards as payment. Interchange fees are a critical revenue source for maintaining the electronic payments system, which includes innovating products and services that make payments easier, faster, and safer. Ultimately, this benefits us all.

Although the impact of the Durbin amendment was never studied, many claimed the benefits would be far-reaching: consumers would see lower prices, businesses of all sizes would benefit, and community financial institutions would be exempt from the harmful impacts. Six years later, the opposite has happened. Truthfully, this should not come as a shock: price controls never work and this policy is the rule, not the exception.

While the largest retailers have seen savings—estimated at $6 to $8 billion each year—they failed to follow through on their promises to lower prices for consumers. In fact, one in four retailers actually raised prices after the Durbin amendment went into effect. And the other three-quarters? All but one percent kept them the same.

Yet that’s only strike one.

To make matters worse, consumers have lost out on free checking, debit card rewards, and other bank perks they’ve come to rely on and love over the years. Many have seen account minimums rise or have faced growing banking fees. That’s strike two.

The kicker is that even with these changes, financial institutions have only recouped about a third of their lost revenue.

Speaking of financial institutions, the Durbin amendment was supposed to exempt small financial institutions—such as your community bank or local credit union—from the price controls. Unfortunately, these institutions have nonetheless seen a decrease in their interchange fee revenue; three-quarters of small banks said the policy had a slight or significant impact on them. These institutions are the hearts of our communities, responsible for banking services for millions of Americans. We cannot afford anything that hurts consumer access to the banking system. 

That’s three strikes. But Congress doesn’t follow the rules of baseball, otherwise the Durbin amendment would be long gone by now. With the impacts of this policy clear, it makes you wonder why Congress is letting the Durbin amendment continue to exist. Every day it’s still around, it continues to hurt consumers.

Our leaders need to act now to get rid of the Durbin amendment. Big retailers shouldn’t be able to profit at their customers’ expense. If we want to help the economy grow, it’s time to call a strikeout a strikeout: throw the Durbin amendment out.

Matthew Kandrach is President of CASE, Consumer Action for a Strong Economy, a non-partisan consumer advocacy group promoting free markets.

The views expressed by this author are their own and are not the views of The Hill.