I always found it a little weird how community banks and credit unions largely sided with their large-bank brethren in the fight over the Durbin Amendment and the cap it put on the so-called "swipe fees" banks charge merchants for processing debit cards.
Trade groups representing community banks and credit unions vehemently opposed the Durbin Amendment, even after legislators specifically exempted banks with under $10 billion in assets. Their rationale was that retailers would eventually try to squeeze community banks' swipe fees in order to get them in line with big banks' legally capped fee structure.
Here's then-chairman of the Independent Community Bankers Association Jim MacPhee testifying before a Senate committee in 2010 that Durbin would ultimately force community banks to stop offering debit cards:
"Sen. Durbin's amendment requires the government to regulate debit interchange for the megabanks. That means unregulated community bank cards become the most expensive cards for merchants to accept. Because the other provisions in the bill remove consumer protections, large merchants are encouraged to accept only the cheaper cards and either refuse to accept the more expensive community bank-issued cards or set enormously high minimum payment amounts for use of a community bank-issued card. Also, nothing would stop card networks from simply applying the artificially lowered interchange rates across the board to all issuers, regardless of size. Both of these eventualities will force many community banks to reevaluate their ability to offer debit and credit cards. This is a lose-lose for community banks and their customers and is why the Senate must oppose this amendment and its 'carve out,' which does not work."
I don't mean to pick on McPhee or the ICBA here. I did an interview in 2011 with Fred Becker, president and CEO of the National Association of Federal Credit Unions, who said basically the exact same thing.
But regardless of who said it, the squeeze on swipe fee revenue flowing to community banks and credit unions haven't materialized. Even before Durbin took effect, Visa and Mastercard, the two biggest debit processing networks, pledged to create a two-tiered pricing structure that would protect exempt institutions' swipe-fee revenues. And now, we have a Federal Reserve study that seems to show small banks have been entirely unaffected by the swipe fee caps. From the study:
Data collected after the rule took effect show that the average interchange fee per transaction received by nonexempt issuers in the fourth quarter of 2011 declined 45 percent from the 2009 level, from 43 cents in 2009 to 24 cents. The average interchange fee received by exempt issuers remained at the 2009 level of 43 cents.
Now, as the study notes, the Durbin amendment only took effect in October, so it's possible MacPhee's nightmare scenario could still come to pass.
But I really don't see how that would actually happen. Do community bankers really think merchants will take the time to discriminate between cards issued by banks with more than $10 billion in assets and those with less? Will they invest the necessary time and manpower in creating a "good" and "bad" list of issuers with different purchase minimums for each? Especially when the vast majority of the debit cards swiped in their stores are issued by large national banks anyway?
In the end, I think credit unions' and community banks' opposition to the measure was more about solidarity with the financial services industry than it was about any actual belief that this stuff would take place. Either way, community bankers' worries about Durbin seem destined to join the long and rich history of dire predictions about American legislation that never came true.
What do you think? Is Durbin destined to hurt community banks and credit unions? Or were fears over the cap overblown?
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