The Durbin Amendment, a last-minute addition to the 2010 Dodd-Frank financial reform law, has now been in place for two years, and though its benefits have been apparent and widely-cited by the law’s supporters, the costs are more opaque.
A new study by the Merchants Payments Coalition (MPC), a trade association of retailers, supermarkets, gas stations, convenience stores, and other businesses supporting the law, shows that debit card swipe fee reform under the Dodd-Frank Wall Street Reform and Consumer Act saved consumers and merchants billions of dollars in 2012 and may have created several thousand new jobs. But when you factor in the unseen costs of government price controls on debit card transactions, the aggregate benefits of the Durbin Amendment are significantly less.
According to the study, reducing the fees banks charge merchants per debit card transaction from 48 cents to 24 cents put $5.8 billion back into the hands of consumers through reduced costs and $2.6 billion were kept by merchants, facilitating the creation of 37,501 new jobs in 2012. The study also finds that had fees been cut to 12 cents, as originally recommended by the Federal Reserve Board, an additional $2.79 billion would have been generated in consumer savings and $1.2 billion more in merchant savings leading to an additional 17,824 jobs.
Additionally, the study concludes that if swipe fees for all credit card transactions had been held to the same level as debit fees in 2012, consumers would have saved an additional $15.4 billion and merchants would have saved another $6.9 billion, which could have supported 98,600 additional jobs per year.
So were free-marketeers wrong on the Durbin Amendment all along? Not quite. First off the job figures in the study are crude estimates, and not actually the result of surveying retailers. The Durbin Amendment, which retailers lobbied hard for at the eleventh hour, has also led to measurable harm. Studies have emerged that suggest consumers are not saving nearly as much as the Merchants Payments Coalition study finds.
New research from the Electronic Payments Coalition (EPC), a trade association of credit unions, community banks, and payment card networks, shows that retailers continue to hold on to the $8 billion annual windfall, without passing any of those savings along to consumers. Despite promises of lower prices, the study finds that 81 percent of stores raised prices or kept them the same in the last year, and many raised their prices far above the rate of inflation.