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Consumer Savings from Durbin Uncertain, Says Consumer Advocate

Found this in the American Banker newspaper today:

Consumer advocates still aren’t sure if new federal caps on debit card swipe fees will end up helping or hurting consumers.

“It is too early to predict whether consumers will see some savings as a result of the new fee restrictions,” James L. Brown, a longtime consumer advocate and a retired director of the Center for Consumer Affairs at the University of Wisconsin-Milwaukee, told an audience of bank lawyers on Monday. New federal caps on debit interchange fees went into effect in October, slashing the fees that banks and three of the nation’s largest credit unions can collect from merchants every time consumers buy things with their debit cards.

The caps were required as part of the so-called Durbin amendment to the Dodd-Frank Act. Brown spoke at the American Bar Association’s winter meeting of consumer bank lawyers in Park City, Utah. During a panel discussion about the Durbin amendment, he called the cap on interchange fees “a price control on financial service providers,” and predicted that interchange fees at the new caps “will be substantially lower.”

Debit card issuers “can be expected to try to recoup the lost fees from other sources,” he said, adding that a major problem for banks is that “70% to 80% of bank accounts are unprofitable.” The interchange fee cap also will “heighten the segmentation of consumers who can increase spending using credit cards,” Brown said, waving his hand in a large conference room to indicate his audience of well-heeled lawyers, who can afford to use their credit cards and pay them off in full every month. (American Banker Online, Jan. 11)

As you know, credit unions fought hard against the debit interchange fee cap, and while every financial institution under $10 billion in assets is “technically” exempt from the cap, there are real worries that in the years ahead, this cap for larger institutions will negatively impact small issuers by cutting the income generated by fees on merchants. Credit unions put this income from interchange fees to good use to offset the costs of offering free checking and debit card programs to members, and to cover fraud losses.

Tags: Governmental Affairs, League News

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