Repeal Durbin Amendment And Put Consumers Over Profits
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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowIn today’s economy, businesses that value customers over profits are rewarded with loyalty, a sense of trust that can be hard to develop during typical business transactions, and a long-term customer who spreads the word about you. No one knows this better than credit unions, which exist solely to serve our members.
With 158 credit unions in Indiana, the Indiana Credit Union League and our members are proud to serve more than two million Hoosiers with checking accounts, credit cards, IRAs, $17.5 billion in loans, and other services to meet their financial needs. Because we’re not-for-profit, earnings for operations or reserves not needed are returned to our members through lower loan rates, higher savings rates, and low-cost (or even free) services. This means that all of our decisions come from a place of supporting our members, not adding to our bottom lines.
However, this same mindset cannot be applied to big-box retailers, who have used a policy known as the Durbin Amendment to pocket $6-8 billion annually for the past six years at the expense of consumers.
To provide you with some background as to how this came about, the amendment was tacked on to the Dodd-Frank Wall Street Reform and Consumer Protection Act last minute at the insistence of big-box stores’ lobbyists, who promised consumers would see lower prices at the register under the policy. While there were no formal hearings or any studies conducted to assess its potential impact, it passed Congress and went into effect in 2011.
Under the Durbin Amendment, Congress placed price controls on the costs merchants pay to accept and authorize debit card transactions, otherwise known as interchange fees. Financial institutions like credit unions put this interchange revenue toward the electronic payments network’s maintenance, as well as important innovation that makes paying with a card or mobile wallet safer and easier for consumers and businesses. It also is an important component of free checking that is available to consumers from many credit unions.
Because of the price controls, credit unions alone have seen a $1.1 billion decrease in our interchange fee revenue. The losses have extended to the broader banking industry as well. For example, the largest institutions, which process a majority of debit transactions and therefore have covered the majority of costs associated with running the electronic payments network, have seen a 50 percent reduction in their revenue. Now, credit unions and other small institutions, who already have a higher cost structure due to our size, have to bear a larger share of the costs of running a significantly less profitable system.
To make matters worse, a second provision in the Durbin Amendment includes a set of costly routing requirements that are difficult for smaller financial institutions like credit unions to bear. In fact, overall regulatory compliance costs for credit unions have grown by 39 percent over the past seven years, totaling $7.2 billion.
This only ends up hurting our members, who make up nearly one-third of our state’s residents.
It’s time for Congress to take action on the failed Durbin Amendment and end this policy’s harmful overreach. Not only would this benefit the 109 million members of credit unions around the country, including those of us here in Indiana, but it would end the $42 billion merchant markup going into big-box retailers’ pockets instead of their customers’ wallets.
Let’s make 2017 the year that we prioritize consumers over profits.
John McKenzie is the president of the Indiana Credit Union League.