In a letter to the Federal Reserve yesterday, a group of six financial trade associations—including the American Bankers Association and the Independent Community Bankers of America—described the ongoing harm that the Durbin Amendment has caused to consumers and community banks and called for its repeal and expressed concerns about the risks from current and potential future proposals to change Regulation II (Durbin’s implementing regulation). The Fed last year proposed to change Reg II’s routing provision to mandate that banks provide at least two unaffiliated networks when processing card-not-present purchases (such as internet transactions) and to accept novel transaction types like ‘PINless’ that may be riskier.
The groups highlighted data showing that Durbin’s routing provision (which applies to all banks) has reduced revenue even at community banks that were nominally “exempt” from the law’s rate cap provisions. They pointed out that “lowering the interchange fee cap would drive small and medium-volume card issuers out of the industry, which would have negative impacts on both competition and consumers in the long run.”
In addition, the groups critiqued the methodology that the Federal Reserve uses to measure the cost of debit card transactions, honing in on the agency’s request for comment on the quality of its information collection practices. The groups cited nearly a dozen sources of debit card costs borne by issuers that the Fed does not take into account when determining allowable interchange fees. All of these factors have led to quantifiable consumer harm that stands in the billions.
In light of merchant requests that the Federal Reserve reinterpret Durbin and make its rules stricter on banks, the group also warned that “further adjustments, ostensibly to refine the implementation of Durbin’s mandates, are likely to have additional and unpredictable distortionary market effects and exacerbate the damage done by existing rules.” The groups added that “demands to reopen Regulation II are premature and motivated by short-term and parochial economic interest,” and called on the Fed to “report to Congress a conclusion that the Durbin Amendment has failed to achieve its stated goals,” and “recommend its speedy repeal.”
