The Durbin Amendment isn't saving most merchants much money on debit interchange fees, and the few that are saving money aren't passing those savings on to consumers, according to a new study released by the Federal Reserve Bank of Richmond.
The amendment, which is part of the Dodd-Frank Act and took effect in 2011, put a cap on debit interchange fees in an effort to reduce the cost of accepting card payments. The move was publicized as a way to help merchants and in turn consumers, who would – at least in theory – benefit from lower prices.
But the survey, performed in partnership with Javelin Strategy & Research two years after the regulation was established, found that less than 10% of the 420 merchants in 26 sectors surveyed for the study saw a decrease in their debit costs.
"A sizable fraction of merchants are found to raise prices or debit restrictions as their costs of accepting debit cards increase," the study said. "However, few merchants are found to reduce prices or debit restrictions as debit costs decrease."
Two thirds of the merchants surveyed reported no change or didn't know the change in their debit costs post-regulation. One fourth actually reported an increase in debit costs, particularly for small ticket transactions, the study said.
"This has all happened because Visa and MasterCard work with their banks to fix the fees that the banks charge merchants on debit and credit transactions. Such price-fixing is the most basic violation of antitrust law and American free enterprise. But the credit card companies still do it," National Association for Convenience and Fuel Retailing Senior Vice President of Government Relations Lyle Beckwith said in a recent editorial about the study.
The study authors noted that merchant discount rates, which typically include interchange fees plus a markup charged by acquirers, may explain part of why merchants said they're not seeing savings. How much interchange reduction that can be passed along to merchants may depend on the pass-through rate of the acquirers, the study said, and Durbin does not set a cap on that rate.
Another factor is that issuers with less than $10 billion in assets are exempt from the cap, which means merchants whose customers use exempt debit cards may not see a reduction in fees. Exempt transactions accounted for about 37% of transaction value and volume across all networks in 2013, according to the study.
Ticket size is also having an effect on debit costs, the study said. Prior to the regulation, most networks offered discounted debit interchange fees for small-ticket transactions to encourage card acceptance. That went out the window after Durbin took effect, and so merchants with lots of small ticket sales (typically less than $15) are likely paying more, according to the study.
"Merchants who had reduced total debit costs could be those who gained more from the large ticket transactions than losing on small ticket ones," it noted.
In a statement, NAFCU said it believes merchants have not passed interchange savings to consumers, and Chief Economist and Director of Research Curt Long noted that a Federal Reserve Board study last year of interchange fee income to financial institutions "makes it pretty clear that issuers are receiving less fee revenue on a per-transaction basis (down to $0.30 per for all transactions and $0.23 per for those covered by the rule) than they did pre-Durbin."
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