Understanding the Role of Swipe Fees and Their Benefit to Consumers
by CEO Max Cook and President Jackson Hataway
Missouri Bankers Association
Now more than ever, increasing access and affordability to fundamental banking services must be a priority for our elected officials. We have seen how banking services can empower individuals in our state to pursue the dream of owning a home, starting a new business and saving for retirement. These services are especially important for rural communities throughout Missouri.
It is extremely disappointing to see special interest groups and big-box retailers attempt to expand the Durbin Amendment to credit cards. Credit card interchange fees are tacked onto every credit card transaction to compensate issuing banks. This allows the banks to provide vital banking services right here in local Missouri communities, such as consumer rewards and anti-fraud measures.
In 2010, Congress passed the Durbin Amendment and set strict caps on debit card interchange fees — fees that retailers pay to debit card issuers like community banks to process debit card transactions. The negative effects were immediate as debit card programs were forced to change while little to no savings were ultimately passed onto consumers by merchants. Mega-retailers like Amazon and Walmart told Congress that price caps on interchange would allow them to lower prices for consumers, which never happened. Instead, the retailers kept their prices in place and simply used the savings to pad their bottom lines.
The Durbin Amendment is among the top five laws and regulations most noted as having significantly affected the cost and availability of basic financial services and negatively impacted consumers. More importantly, the Durbin Amendment’s price caps and card routing regulations took valuable resources away from smaller banking institutions in order to line the pockets of mega-retailers that are making record profits. It’s estimated that card issuers lost $106 billion over the past decade as consumer options and access declined.
Earlier this year, the Government Accountability Office —an independent government agency — released a study that found interchange regulations on debit card purchases ranked as one of the most harmful laws negatively impacting the availability of fundamental banking services. Less interchange revenue means that smaller banks can no longer afford to offer popular services like free checking accounts, low minimum balances and debit card rewards programs. George Mason University found that the Durbin Amendment increased our country’s unbanked population by one million Americans.
Now Congress is looking to replicate the Durbin Amendment by cutting and capping interchange fees for credit cards. They argue that this will help consumers deal with inflation and an economic slowdown. Unfortunately, that didn’t happen the first time the Durbin Amendment passed, and it won’t happen this time. If lawmakers are so interested in helping Missouri consumers during this economic downturn, why haven’t they looked at merchants’ failure to pass the savings along to consumers that was promised in the Durbin Amendment?
We have more than a decade of research clearly showing that the Durbin Amendment is a bad policy that directly harms the ability, especially for rural Missourians, to access affordable banking services. We know that expanding interchange caps to credit cards would threaten another popular banking service Americans love — credit card rewards. Multiple studies have shown that credit card rewards programs, like cash back and travel programs, benefit all income levels and are especially important for consumers who are trying to save money when prices increase because of inflation.
This is not the time to reduce consumer access to financial services or to reduce the ability of community banks to ensure that those services are safe and secure. Consumers have paid the price for the Durbin Amendment for the last decade. We should not pay the price again.
We need Sens. Roy Blunt and Josh Hawley to sit down with community banking leaders across the state to learn more about the essential role of interchange fees. Our elected leaders should be doing everything they can to expand access to credit services in underbanked communities, not restricting them in favor of big-box retailers.
Max Cook is CEO of the Missouri Bankers Association, and Jackson Hataway is president of the association. MBA is a statewide trade and professional organization in Jefferson City that represents the interests of 235 banks and savings and loan financial institutions in Missouri. MBA serves as the principal advocate for the Missouri banking community and provides educational opportunities, products and services that assist bankers with enhancing their banking operations. Follow MBA on Twitter at @mobankers.com