Understand the true impact of interchange regulation

Study reveals the negative impact of interchange legislation on consumers and businesses.

July 24, 2023

As big box retailers push Congress to impose more government mandates on card payment systems and interchange, a new study reveals the continued negative impact of interchange legislation on consumers, small businesses, and financial services options.

CUNA and the American Association of Credit Union Leagues (AACUL) commissioned Cornerstone Advisors to study the impact of the 2010 Dodd-Frank Act’s Durbin Amendment, which implemented debit card routing mandates and debit interchange price caps. The study includes the financial impact from existing and proposed regulations, including the interchange bill introduced this Congress by Sen. Richard Durbin, D-Ill.

“The research clearly shows that imposing a government mandate on interchange didn’t help consumers or small businesses the first time around,” says CUNA President/CEO Jim Nussle. “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,” he continues. “We’ve seen the unintended consequences from the Durbin Amendment for more than a decade. Let’s not double down on a bad idea.”

CUNA sent the study to members of Congress and urged them not to support a repeat of the failed Durbin Amendment.

According to “The True Impact of Interchange Regulation: How Government Price Controls Increase Consumer Costs and Reduce Security,” debit card routing mandates brought ongoing negative impacts, regardless of any exemptions built in for smaller financial institutions. Expanding mandates to credit cards would further compound the problem.

“Price controls create an imbalance in a market in contrast to when prices are set through market forces,” the study states. “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.”

‘Cutting credit card interchange with this new bill would help big box retailers avoid responsibility and put consumers at greater risk.’
Jim Nussle

The study offers three recommendations:

  1. Merchants and any network that processes card transactions must be held accountable to a standard for fraud protection and data security.
  2. The asset threshold tied to debit card transactions should be raised significantly.
  3. 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 more limited resources.

These recommendations are based on key lessons learned from the Durbin Amendment:

  • All debit card issuers, 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 fraud is growing faster than payments, and the cost to fight fraud is larger than reported figures.

The study also includes CUNA data from a 2022 survey asking consumers if they’d been charged an extra fee by a merchant for using a credit card in the past year. Two-thirds (66%) noted they had, and 46% stated they would conduct business elsewhere if faced with a surcharge for using a credit card.

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