Though America’s small banks and credit unions have been spewing fire and brimstone about the implications of the Durbin Amendment since 2009, it seems that they’ve just been full of hot air all along. This past Tuesday, the Federal Reserve Board released their latest round of statistics regarding the controversial swipe fees that merchants have to pay every time they process a debit or credit card.
What they found is that rather than collapsing under the new structure of the Durbin Amendment, small banks are actually prospering – just like the pundits and talking heads said they would.
When the Independent Community Bankers of America, a trade group for smaller banks, announced that they were supporting legislation to derail the Durbin Amendment last year, industry analysts were more than a little confused. Though the amendment caps the interchange fees levied on debit card transactions at around 24 cents for Wall Street’s biggest banks (it was 43 cents previously), it explicitly exempts smaller banks from the new structure. As a result, experts like former International Monetary Fund economist Simon Johnson claimed that, if anything, “The Durbin Amendment is a determined attempt to give the small banks an advantage” in an all-but-monopolized market.
Up until now, though, the ICBA hasn’t been convinced. It has claimed that rather than helping small banks, the new structures will end up squeezing small banks out of payment systems altogether. However, the Federal Reserve Data is showing that just the opposite is happening.
According to the release, debit card transactions have increased by 24% since 2009 for both exempt and non-exempt banks. Additionally, in the fourth quarter of 2011, incentive-based payments for debit card transactions were roughly the same for both exempt and non-exempt banks. Yet, while the interchange fees for non-exempt banks have declined by about 50% since 2009, the fees charged by smaller independent banks have actually increased by as much as 23% for certain transactions.
Put simply, business is still thriving for small banks. The only difference is that they’re making more money from debit cards now, not less. It’s exactly what advocates for the Durbin Amendment predicted would happen. “Just as reform advocates argued and Congress intended, today’s data confirms that small institutions are unaffected by swipe fee reform,” said Douglas Kantor, counsel to the Merchants Payments Coalition, in a recent news release. “The gloom-and-doom predictions of reform opponents have proved false.”
Though the ICBA might be eating humble pie following the Fed report, at least one financial lobby is still intent on starting a food fight. According to the National Retail Federation, the largest merchant organization in the country, the data just proves that the government is failing to make payments fail for retailers.
In another recent news release, NRF Senior Vice President and General Counsel Mallory Duncan said, “We believe the numbers for the big banks are too high and had the Fed followed the law there would be significantly greater savings for merchants and their customers. This is working the way the Fed set it up to work, but the Fed didn’t fully comply with what Congress required. This is better than paying the full monopoly prices we paid before but they are still partial monopoly prices.”
The cap on debit interchange fees was originally set to be between 7 and 12 cents per transaction. It wasn’t until the banking industry launched a massive lobbying campaign that the rates were raised to more than twice that amount. While the compromise was originally praised by merchant unions, recently they’ve been less than satisfied, even going so far as to sue the Fed for not enforcing the amendment as Congress had intended.
However, their dissatisfaction shouldn’t take away from the real story here – that there is now tangible evidence proving the Durbin Amendment is working. It may not be working the way that merchants want, but it’s working. We can at least be thankful for that.