Reg Z and floor rates on open-end loans

Durbin Amendment ‘purest example’ of failed government policy

May 3, 2022

America’s credit unions vehemently oppose any regulation or legislation that impacts the operation of debit or credit cards, CUNA wrote to the Senate Judiciary Committee Tuesday. The letter was submitted for the record of the committee’s hearing on interchange and follows a joint letter from CUNA and other organizations sent Monday.

“The federal government’s attempts to impose price controls by regulating interchange through [the Dodd-Frank Act’s Durbin Amendment] are the purest example of a failed government policy,” the letter reads.

“The result of the Durbin Amendment has been additional compliance burdens and related business costs to credit unions and banks, a reduction in interchange revenue from debit transactions, and a massive transfer of money to the largest retailers,” it adds.

The Durbin Amendment requires the Federal Reserve to set a cap on debit card transaction interchange fees and mandated routing requirements for all debit card payment networks. Proposals have been put forth to expand the Durbin Amendment to credit cards. 

“CUNA members’ analysis finds extending debit card interchange regulations to credit card transactions will decrease revenue by over 50%, doubling the percentage of credit unions with net-negative margin credit card programs and particularly harming credit unions under $100 million in assets that disproportionately serve poorer and socio-economically disadvantaged populations,” the letter reads. “In real terms, 73% of credit unions would have to raise credit card rates, 61% would have to implement or raise credit card program fees, and 15% would have to reduce or eliminate credit card programs altogether.”

CUNA notes that interchange fees keep consumers, merchants, and financial institutions safe, as interchange fees cover the costs of fraud detection, credit monitoring, and fraudulent purchase protection.

“Limiting the ability of the electronic payments system to charge a market rate for the services they are providing to merchants will result in a loss of small community financial institutions providing card services or force them shift resources from vital products and services to fund the programs,” it reads.

CUNA also cites studies from the Federal Reserve Bank of Richmond showing merchants and retailers will keep for themselves any savings when interchange is reduced, and conversely pass along to their customers any increase in interchange costs.

Another study from the Government Accountability Office ranked the Durbin Amendment among the top regulations most cited as “significantly affected the cost and availability” of basic financial services.

CUNA, the American Association of Credit Union Leagues, and all Leagues sent an additional letter to the committee Tuesday outlining concerns.

CUNA also issued an action alert calling on credit unions to share information on how members rely on payment cards and the barriers that would arise with any Durbin Amendment changes.