November 15, 2016
Momentum has been building this year to repeal the caps on debit interchange imposed by the Durbin Amendment to the 2010 Dodd-Frank Act. While predictability is not a word usually coupled with him, the election of Donald Trump as president probably will not cool those efforts. Merchants and issuers have been grappling over the costs associated with payment card acceptance for decades. The financial upheaval caused by the housing bubble and the resulting global recession gave merchants the upper hand to get Durbin passed at the end of the last decade, but banks may feel a clean sweep by Republicans in the most recent U.S. elections are an opportunity to claw back some of that ground.
The latest salvo is a survey conducted by polling and market research firm Morning Consult for the Electronic Payments Coalition (EPC) that found more than 60 percent of consumers are in favor of repealing the Durbin Amendment if “merchants are not passing the savings on to consumers.” Banks contend that merchants have not done so (and offer up a Federal Reserve report to back their claim). The Morning Consult survey also found two-thirds of consumers believe government should be left out of the matter and interchange “should be negotiated by merchants and processors.”
While it is clear the cap imposed on how much interchange issuers can charge merchants on debit transactions has resulted in many merchants paying less for processing, determining if that reduction has been passed on to customers is difficult at best and may not even be possible. And, the Fed paper the banks use to say how much money merchants are making also reported that those specializing in small-ticket items actually paid more since the legislation. The banks and card networks through the EPC, however, are very explicit on what they believe is the correct course of action.
“It is clearly time to repeal the Durbin Amendment, which is nothing more than a merchant markup that has served the special interests of big box retailers for far too long,” said Molly Wilkinson, executive director of the Electronic Payments Coalition. “Customers are not benefitting from the price controls on debit interchange transactions and this new data shows consumers support ending this failed policy.”