Latest news with #DurbinAmendment
Yahoo
26-04-2025
- Business
- Yahoo
The Senate's biggest critic of card fees is retiring. Here's one Bankrate expert's take on his legacy
U.S. Sen. Dick Durbin, a Democrat from Illinois, announced on April 23 that he will retire after his current term ends in January 2027. While he isn't what you might call the Senate 'finance guy' — he's the top Democrat on the Senate Judiciary Committee, not the Banking Committee — Durbin has been impactful on a number of legislative financial actions over his decades of service. In particular, he helped reshape debit card processing fees in a major way with the Durbin Amendment back in 2010. More recently, he's been working to shake up the credit card interchange landscape as a sponsor of the Credit Card Competition Act. While he's positioned his efforts as pro-consumer, the results — or anticipated results — of his efforts haven't always handed consumers a win. The eponymous Durbin Amendment (part of the Dodd-Frank Wall Street Reform and Consumer Protection Act) greatly reduced the debit card processing fees that merchants pay banks every time a customer uses their card. The act was signed into law in 2010. Among other things, the amendment limited the debit interchange fee to a maximum of 0.05 percent of the transaction value plus 21 cents (with an extra cent for fraud protection). In practice, this brought the average debit card processing fee down 52 percent (from 50 cents to 24 cents), according to the International Center for Law and Economics. Merchants, as you might expect, rejoiced, but the net effect on consumers wasn't as positive as intended. Though their transaction costs had decreased thanks to the Durbin Amendment, most retailers did not pass those savings on to consumers. In fact, only 1 percent of retailers lowered prices, according to the Richmond Fed. And, in an additional blow to consumers, banks reacted to receiving lower interchange fees by scaling back debit card rewards programs, raising other fees (such as ATM and overdraft fees) and making it harder to get a free checking account, the Cato Institute reports. The Durbin Amendment was well intentioned, but market conditions backfired and prevented consumers from realizing the desired cost savings. Unfortunately, this often happens with fees. They can be like Whack-a-Mole — one goes down, another comes up. More recently, Durbin has set his sights on reducing credit card interchange fees. Merchants love to complain about these levies (the average is about 2.2 percent, according to The Nilson Report). The Merchants Payments Coalition says credit card processing fees are most merchants' highest cost aside from labor, totaling a record $187.2 billion in 2024. Durbin is the chief architect of the Credit Card Competition Act (CCCA), a bill first introduced in 2023 that seeks to lower merchants' interchange fee burden, but differently than the Durbin Amendment did for debit cards. The Credit Card Competition Act seeks to reduce fees by promoting more competition in the payment processing market (that sounds friendly, but I worry about unintended consequences). It would mandate that credit card issuers with assets over $100 billion enable at least two networks for each transaction, and merchants could then choose which to use. Durbin has assailed Visa and Mastercard for allegedly engaging in a price-fixing duopoly. The CCCA includes the provision that Visa and Mastercard can't be the only available networks. A card issuer could perhaps offer Visa and American Express, for example. Or Mastercard and Discover. There also seems to be the hope that smaller networks could emerge and serve as lower-cost alternatives. It all sounds fine in theory, and it's not a hard cap like we saw with the Durbin Amendment's changes to debit card interchange fees, but the effect on consumers could be similar — reduced credit card rewards, less access to credit and higher fees in other areas. Credit card rewards lovers' reaction People who rely heavily on travel rewards cards to fund their adventures have been particularly vocal opponents of the legislation. They know that credit card companies make money through cardholder fees and interest charges, yes, but also through these transaction fees. In one way or another, cardholders pay for the credit card rewards programs. The fear is that any reduction in transaction fees could put extra card perks — rewards and other benefits — first on the chopping block. Proponents, including Durbin and others, argue that merchants will lower prices, but they didn't do so when debit interchange fees were capped, so it seems unlikely they will this time around. Still, seizing on a Populist wave that has swept across both major political parties, the Credit Card Competition Act has gained notable co-sponsors from both sides of the political aisle, showcasing Durbin's reputation as a bipartisan consensus builder. The bill hasn't come to a vote; it's twisting in the political winds. Durbin's looming retirement could kill its momentum, or it could ignite a late-game push to cement Durbin's legacy as an interchange-fee fighter. Similar to the push to cap debit interchange fees, Durbin and his co-sponsors are trying to advocate for consumers via the Credit Card Competition Act. But the financial industry won't take any threats to its revenue model lightly. Interchange fee reform seems much more likely to benefit retailers than consumers. There are no easy answers, but I believe the current system is better (in terms of rewards, access to credit and more). Durbin has become synonymous with interchange fees in the financial world, but his overall legacy is much wider-reaching. In a recent retrospective, the Associated Press detailed legislative accomplishments ranging from banning smoking on airplanes to criminal justice system reform, immigration reform and more. Honestly, banks will probably wish Durbin a happy retirement and hope he takes his interchange fee microscope with him. In the year following the implementation of the debit card interchange cap, the aforementioned Cato Institute report says banks lost out on between $5.1 billion and $7.4 billion in revenue. Unfortunately, most of that seemed to line retailers' pockets, rather than providing consumers with relief. Have a question about credit cards? E-mail me at and I'd be happy to help. Sign in to access your portfolio
Yahoo
26-04-2025
- Business
- Yahoo
Illinois AG, Durbin defend state card fee law
This story was originally published on Payments Dive. To receive daily news and insights, subscribe to our free daily Payments Dive newsletter. Banks and credit unions seeking to block an Illinois law banning interchange fees on taxes and tips are misreading U.S. banking laws, argued the state's attorney general, a coalition of merchants, and U.S. Senator Richard Durbin in briefs defending the state's fee law. Illinois Attorney General Kwame Raoul filed motions Wednesday opposing the banks' bid for summary judgment and requesting that U.S. District Judge Virginia Kendall instead grant the AG summary judgment. Durbin, who authored the Durbin Amendment to cap debit card fees, filed his second amicus brief in six months Wednesday in a federal lawsuit banks brought last year to block a 2024 Illinois law that bans card interchange fees on the sales tax and gratuity portions of card transactions. The Illinois law is set to take effect July 1 and has inspired multiple other states to pursue interchange fee bans on tips and taxes. The plaintiffs – four trade associations representing banks and credit unions – sued in August arguing that federal law preempts Illinois' effort to remove sales tax and gratuities from the transaction amount used to calculate the interchange fee. In December, Kendall granted a partial injunction of the law for national banks and federal savings associations. In their lawsuit, filed in Chicago, the groups, including the American Bankers Association and the Illinois Credit Union League, said the new law 'would not only throw well-operating payment card systems into chaos, it would also undermine the significant benefits, safety, and security that payment card systems provide to all participants.' Banks and card networks, such as Visa and Mastercard, say the fees fund investments in payment systems and fraud prevention, but retailers argue that card swipe fees have increased too much and become overly burdensome. The bank groups filed a motion last month requesting the court grant summary judgment, with opposing briefs due Wednesday. The plaintiffs argue that federal preemption from the National Bank Act applies to 'participants in the intricately interconnected payment system.' In its response, the AG's office says that position 'is hopelessly at odds with the plain language of the statute.' Durbin, who announced this week that he won't seek re-election next year, weighed in initially on the litigation with a brief in October arguing that the Illinois law is compatible with the debit-card amendment bearing his name that became part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. 'The IFPA's reform is modest and measured; it does not remedy the core structural and anticompetitive defects of the interchange fee system, but it would provide helpful relief for Illinois merchants who paid an estimated $488 million in interchange fees on sales tax in 2023 and would help reduce the inflationary effect that these fees have on the retail prices consumers pay,' Durbin wrote in his latest brief. The state act 'fully aligns with the Durbin Amendment's text, its structure, and its goal of constraining network-fixed debit interchange fees to reduce excessively high fee rates,' Durbin added. U.S. businesses paid about $145 billion in fees last year to accept Visa and Mastercard credit and debit cards, according to a March 2025 Nilson Report statistic cited in the merchants' brief. Merchants and the networks have been involved in separate litigation over these fees since 2005. Recommended Reading Durbin jumps into Illinois interchange law fray
Forbes
20-03-2025
- Business
- Forbes
Reversing Regulatory Overreach Will Encourage Payment Innovations
Credit Card Purchase getty Innovation is often a victim of its own success as the once unimaginable becomes the invaluable service people cannot live without. The modern payments system exemplifies this phenomenon. Innovations by fintech startups as well as traditional financial companies now enable trillions of dollars in transactions annually. And thanks to robust competition and continual innovations, the quality of these services for consumers and businesses continues to improve. The growth of the payments system also caught the attention of regulators, and previous regulatory actions by the Biden administration now threatens this progress. But there is a new sheriff in town, which creates an opportunity to reverse these unnecessary restrictions. Ensuring that markets are competitive and operate for the benefit of consumers is a difficult task, especially because the market process for many goods and services is complex and consistently evolving. It can be difficult for regulators to accurately identify when actions may violate anti-trust laws and when those actions are growing market share because the company is figuratively building a better mouse trap. The consumer welfare standard, which has been consistently applied for decades, has provided a sound standard for differentiating these actions. Essentially, if businesses' actions promote the interests of consumers, then there is no violation of antitrust law. This standard makes perfect sense – after all, the ultimate purpose of anti-trust law is to protect consumers not businesses who are providing their customers with inferior products. To the detriment of consumers, the Biden Administration abandoned this standard. Without the guidance provided by the consumer welfare standard, the Biden Administration pursued misguided antitrust actions that threatened to reduce the quality of payment services consumers receive. The Department of Justice's (DOJ) lawsuit against Visa illustrates the potential consequences. The lawsuit takes an unreasonably narrow view of the financial payments system to allege that Visa is a monopolist – specifically, Visa allegedly holds a monopoly over debit card transactions. These allegations are both wrong on the facts and bad for consumers. On the facts, consumers have many electronic payment options. There are direct competitors to Visa that include Mastercard and Discover. There are also the growing alternative payment models that compete with these traditional options including Apple Pay, Google Pay, Venmo, PayPal, and Cash App. Consequently, the payment market, where new competitors consistently enter and thrive, is hardly one that is dominated by a monopolist. The regulatory environment, specifically the flawed Durbin Amendment, also undermines the DOJ's allegations. This amendment mandates that every debit card issuer offer a choice of two competing networks. In other words, a competitive environment in the debit card portion of the market is already required. Given that there are many competitors to Visa, and onerous regulations already mandate competition for every debit card, it is unclear how the DOJ can argue that consumers do not have choices. They do, and it is unlikely that the lawsuit would ever have been filed had the Biden Administration followed the consumer welfare precedent. But instead of focusing on whether consumers benefit or not, the antitrust regulators focused exclusively on size. This New Brandeisian school of antitrust thought misapplies the Sherman Act and essentially assumes that a growing market share for large companies is, on its face, suspicious. The focus of antitrust actions quickly turns toward breaking up large companies or preventing beneficial mergers and acquisitions that promise consumers better quality services at lower prices. Whether the market is competitive and whether consumers are better off are barely secondary considerations. Since regulators are not focusing on consumers' welfare, it should not be surprising that this regulatory approach does not benefit consumers. In addition, the rejection of the consumer welfare standard biases the environment toward excessive regulations. After all, a standard that raises antitrust concerns based on size, regardless of the benefits that consumers are receiving, will ultimately overregulate. Excessive uncertainty inevitably follows when the government regulates more and bases those regulatory actions on non-material criteria. This greater regulatory uncertainty discourages investment and stifles economic growth. Ironically, the complex regulatory environment that inevitably follows makes it harder for new players to enter the market, defeating the very goal of antitrust law. Given these consequences, the path forward is clear. With respect to the innovative payments sector, the administration should roll back the current lawsuits and continue dismantling harmful regulations that restrict innovation. More broadly, the antitrust regulatory standard should return to the pro-growth consumer welfare standard. This standard promoted a balanced, free-market approach to competition policy that encouraged competition and fostered innovation. Most important, it ensured that the competitive landscape benefit consumers, which, after all, is the reason why antitrust policies exist in the first place.
