Fed Researchers: Durbin Amendment Led to Loss of Free Checking

Confirming long-observed anecdotal evidence, a recent paper from two Federal Reserve researchers found that after the Durbin Amendment took effect, affected banks were 35.2 percent less likely to offer a “free checking” product than they were before Durbin. Without the Durbin Amendment, 65.2 percent of checking accounts at covered banks would have been offered with no monthly maintenance fees; in actuality, just 30 percent were.

The study also showed the link between Durbin and rising fees on accounts, with non-interest checking accounts seeing monthly fees raised by 20 percent. The minimum balance required to avoid monthly maintenance fees rose by 50 percent, or more than $400, for non-interest checking accounts. While banks exempt from Durbin also raised fees as part of the competitive environment, the absence of an interchange price cap meant they raised fees by significantly less than Durbin-covered banks did.

The American Bankers Association has long opposed the Durbin Amendment’s arbitrary price controls and has argued that it is responsible for the substantial decline in popular free checking accounts.