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A report commissioned by CUNA and the American Association of Credit Union Leagues (AACUL) to study the impact of the 2010 Dodd-Frank Act's Durbin Amendment was published Monday and found continued negative impacts of the interchange legislation on small businesses and consumers, stating that it has led to "unintended consequences" for credit unions and other financial organizations.
The report "The True Impact of Interchange Regulation: How Government Price Controls Increase Consumer Costs and Reduce Security" was published by Cornerstone Advisors. In the 42-page report, Cornerstone Advisors took a look at the debit card routing mandates and debit interchange price caps instituted by the Durbin Amendment more than a decade ago.
The study also included "the financial impact from existing and proposed regulations" such as the Credit Card Competition Act of 2023, which CUNA and NAFCU are vehemently opposed to.
The report found debit card routing mandates have "brought ongoing negative impacts" despite exemptions in the law for smaller credit unions and financial institutions. The report also added that "expanding mandates to credit cards would further compound the problem."
The report stated, "Price controls create an imbalance in a market in contrast to when prices are set through market forces. This imbalance leads to unintended consequences including the increased cost of everyday banking products. The intent of the interchange price controls for debit transactions was to deliver savings to customers at the merchants from which they purchase goods or services. There is a lesson policymakers should have considered nearly a decade before the implementation of Regulation II."
Of the report, CUNA President/CEO Jim Nussle said, "The research clearly shows that imposing a government mandate on interchange didn't help consumers or small businesses the first time around. To keep credit cards accessible and safe, merchants must have equal responsibility to protect the data and systems that enable their quick and secure payments. Cutting credit card interchange with this new bill would help big box retailers avoid responsibility and put consumers at greater risk. We've seen the unintended consequences from the Durbin Amendment for more than a decade. Let's not double down on a bad idea."
Overall, the report from Cornerstone Advisors recommended the following three items:
- Merchants and any network that processes card transactions must be held accountable to a standard for fraud protection and data security.
- The asset threshold tied to debit card transactions should be raised significantly.
- Future credit card regulations should not be enacted because they harm both consumers and the banking system — with small, local community financial institutions suffering disproportionately given their much more limited resources.
The report stated those recommendations were based on "key lessons learned from the Durbin Amendment," which included the following:
- All issuers of debit cards — including those under the $10 billion asset threshold — had significant negative revenue impacts.
- Most financial institutions addressed revenue shortfalls through higher monthly fees and increased minimum balance requirements.
- Consumers saw greatly reduced access to free checking, and the number of unbanked Americans spiked following the rollout of the Durbin Amendment.
- All payment networks are not equal. Significant differences exist between single-message and dual-message networks that impact operation and fraud costs for issuers.
- Card not present (CNP) fraud is growing faster than payments, and the cost to fight fraud is larger than reported figures.
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Michael Ogden
Editor-in-Chief at CU Times. To connect, email at [email protected]. As Editor-in-Chief of CU Times since 2016, Michael Ogden has led the editorial team in all aspects of content strategy and execution, including the creation of the publication’s exclusive and proprietary research database of the credit union industry’s economic landscape. Under Michael’s leadership, CU Times has successfully shifted to an all-digital editorial product with new focuses on the payments, fraud, lending and regulatory beats. Most recently, he introduced a data-focused editorial product for subscribers that breaks down credit union issues into hard data, allowing for a deeper and more factual narrative for readers. In 2024, he launched the "Shared Accounts With CU Times" podcast, which offers a fresh, inside-the-newsroom perspective through interviews with leaders from the credit union industry and the regulatory world. He dives into pressing credit union issues, while revealing the personalities working behind-the-scenes to push the credit union world forward. His background includes years as a radio and TV anchor/reporter and a public relations and digital/social media manager, where he covered the food and music industries, as well as cooperatives and credit unions. Over the years, he has launched numerous exclusive video and podcast series, including a successful series of interactive backstage interviews with musicians at music festivals, showcasing his social media and live streaming production skills.
