Why Should You Care About the Durbin Amendment?

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The Great Interchange Debate

Credit unions and community banks all across America are warning the public about an amendment (called “the Durbin amendment”) to the Financial Reform Bill currently being pushed through Congress. This amendment would shift the burden of paying what are called “interchange fees,” the payments that support the administrative and anti-fraud expenses, from the retail merchants who accept a debit card to the financial institutions that issues them.

When a person uses a debit card, the retail merchant is guaranteed payment. In exchange for that guarantee, that retailer pays a fee called “interchange,” which is a couple pennies for every dollar transacted.

Use of a debit card essentially provides the retailer with protection that they do not receive when accepting a check, because if the check bounces, the responsibility is on the merchant to collect. But, if a debit card transaction goes bad, the financial institution issuing that card must cover the transaction amount.

Here’s a chart that outlines the responsibilities of card issuers and retail merchants and the key benefits that debit cards (supported by interchange fees) provide:

Vantage Credit Union Merchant
  • 100% of card issuing expense
  • 100% of card operating expense
  • 100% of fraud losses
  • Statement & Call Center services
  • From less than 1% up to 2% interchange fee
 Benefits (to members)
  • A safe, easy way to pay for goods & services
  • Worldwide & universal acceptance
  • Immediate & guaranteed payment
  • Consumer convenience & safety
  • Increase in goods & services purchased
  • Lower costs handling checks, currency and losses

What’s interesting is we seem to have an amendment that is feeding on consumer anger that all financial institutions are bad and have hidden profit motives. Credit unions aren’t part of Wall Street. We are NOT a “greedy profit driven” financial institution. But, most importantly, interchange rates have absolutely nothing to do with the financial crisis and are completely out of scope of this Financial Reform Bill. But, don’t believe me. I’m biased right? I work here. So, let’s look at a couple interesting and unbiased groups who oppose the Durbin Amendment.

Most interesting opposition: State treasurers from 47 states (including Missouri and Illinois) oppose the Durbin amendment. Let me repeat that again. Virtually every State Treasurer in the United States opposes the Durbin amendment. Why? One reason, according to Shane Osborn, Nebraska’s State Treasurer, “The Durbin amendment would undermine federal and state efforts to provide financial products to millions of low-income Americans, and could shift the cost of card usage to those who can least afford it.”

Another interesting finding: a report from the non-partisan Government Accountability Office last November did not find any need for interchange to be regulated in the United States. It cited both sides of the argument in a factual way, but also cited how Australia’s decision to regulate interchange several years ago has not yielded the promised consumer benefits touted by retailers who supported the legislation. Why repeat the mistake made in another country?

One might think the opposition to Senator Durbin’s amendment is comprised mostly of Visa, MasterCard and financial institutions. But, even celebrities like Russell Simmons oppose the Durbin amendment (Russell's letter to Senator Durbin was published in the Huffington Post) as do small business groups like the National Black Chamber of Commerce and the Latino Coalition.

Vantage Credit Union supports strong consumer protection practices and is committed to advocating pro-consumer legislation. However, we do not support the last-minute amendment from Senator Durbin to the Financial Reform Bill because it will have unintended consequences for any consumer using a debit card, including:

  • If retailers are successful in shifting their fair share of debit card payment costs, as reported in the New York Times on May 21, 2010, consumers will likely need to pay more for checking account services. Even a 50% shift in costs from government intervention would mean consumers could face new debit card fees of approximately $25 per year.
  • Consumers will lose their freedom of choice at the checkout because retailers would be able to dictate how they pay. Merchants could charge higher prices based on card type, as well as set minimum/maximum purchase requirements. They could even choose whether or not they would accept certain types of cards (i.e. pre-paid, debit, credit) and which issuing financial institution card they would (or would not) accept.
  • Nowhere in Durbin’s amendment does it mention the requirement for retailers to lower prices based on the cost savings they would experience if this bill is enacted into law. Why should Congress intervene to boost profits of big-box retailers when it seems certain consumers will ultimately pay for it?
  • The Durbin amendment “exempts” financial institutions under $10 billion in assets. However, no one can explain how it’s practically possible to accomplish this. In reality, if the Durbin amendment passes in its current form and Vantage Credit Union wants to continue offering card services to its members, we will have to play by the same rules/fee structure as the big banks and big card issuers.

As a member-owned financial cooperative, it’s critical that you understand pending legislation that could impact you. In its current form, the Financial Reform Bill with the Durbin amendment is harmful to you as a consumer. Therefore, we urge you to contact your US House Representative and US Senator immediately to voice your opposition. Visit www.capwiz.com/cuna to contact your representative today!

On a more lighthearted note, here’s a YouTube video we found about opposing the Durbin amendment: