Dear Community Banker,
We knew this was going to happen. When Congress passed the Durbin amendment, ICBA and community bankers said government price controls on debit interchange fees would dramatically harm our industry. Now we are witnessing the unfortunate effects of this retailer-promoted government intervention in the payments marketplace. It is time for community bankers to rise up and urge Congress to include a Durbin amendment repeal in the highly anticipated 2017 Financial CHOICE Act, scheduled to be introduced soon by House Financial Services Committee Chairman Jeb Hensarling (R-Texas).
Federal Reserve data show that Durbin price controls have eroded community bank interchange revenues. Per-transaction fees on signature transactions were down 4.4 percent between January 2011 and October 2015 for small issuers, while fees on PIN transactions were down 19.6 percent. The data also show that authorization, clearing and settlement costs at community banks and other low-volume institutions are 17 times higher per transaction than those for high-volume card issuers.
And these “savings” are going not to consumers, but to big-box retailers themselves—and they even admit it. Merchant surveys show that merchants have either maintained or raised prices since debit interchange controls took effect, while low-income consumers have experienced declining availability of free checking accounts, increasing account fees, and fewer debit rewards.
Meanwhile, the requirement that issuers provide two unaffiliated networks for routing debit card transactions is harming community banks as well. Since the Durbin provisions have gone into effect, merchants select between the two unaffiliated networks on the card and determine which network the transaction is routed on. This assures that community banks under $10 billion in assets—who are exempt from the Durbin price-fixing provisions, but not these routing provisions—will face a gradual, yet persistent, decline in their debit card revenue as the merchant selects the least-cost routing.
Merchants argue the routing provision gives choice to community bankers, but we could choose which networks the transaction was routed on—one for signature, one for PIN—before the Durbin amendment. Now, multiple networks compete for the merchants’ business, not ours, and we merely support the options that merchants can select.
Why do merchant groups think retailers are in a better position to make network routing choices than community banks? Financial institutions cover the majority of losses due to fraud. So aren’t we the ones with the most incentive to ensure the security and efficiency of a network?
Before Durbin, community banks got to decide the best fit for themselves and their customers. Today—to boost big-box retailers’ bottom lines—government regulators force community banks to undertake significant costs to add a second routing option that might not serve them well.
ICBA and the nation’s community bankers stood against the Durbin amendment in 2010, and we continue to oppose it today. Congress has an opportunity to correct this bad public policy, so we need to do everything in our power to make our voice heard on Capitol Hill.
The time to act is now! Join us in urging Congress to support a Durbin Amendment repeal and include the repeal in the Financial CHOICE Act.
Take Action Today!
Camden R. Fine
President and CEO