Issue of Interest: Interchange

ABA Media Contact: Jeff Sigmund
(202) 663-5439
Email: jsigmund@aba.com
Last update: Feb. 3, 2017

The Dodd-Frank Act included a provision (the Durbin Amendment) requiring the Federal Reserve to set rates for debit interchange fees.  The final rule, which went into effect on Oct. 1, 2011, represents a 45 percent loss in revenue that banks use to provide low-cost accounts to our customers, fight fraud and maintain our efficient U.S. payments system.  This provided big-box retailers with $8 billion in windfall profits annually while forcing banks to lose money on every debit card transaction.

While exemptions exist for government issued general purpose prepaid cards and cards issued by banks with assets of $10 billion or less, the rule is a big concern for banks of all sizes.  The small bank exemption will not work and cannot be made to work because having two prices for the same product is simply not sustainable in a free market.

The Federal Reserve’s rules have had a dramatic impact on the cost of banking services for consumers nationwide and constitute bad public policy.  The rule directly inserts the government into a price fixing role, mandating competitive inequities in the marketplace.  The bottom line is that the Durbin Amendment has lined merchants’ pockets and consumers ultimately bear the cost.  While retailers promised to pass along their savings to consumers, they have failed to deliver.

On July 13, 2012, the U.S. District Court for the Eastern District of New York announced a settlement had been reached in a years-long legal battle between retailers, payment networks and card issuers over credit card interchange fees and rules (final approval was granted on Dec. 13, 2012).  This highly complex issue was settled in the proper venue – our nation’s court system – through a voluntary agreement, and should be the final chapter in this long-running dispute. 

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