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New study on the millions of dollars in lost revenue. The stage was set for
more acrimony. Merchants wanted fees reduced to 12 cents
Durbin Amendment a transaction; banks wanted more fee revenue; consumers
were not at the table to be heard.

claims consumers Consumers still disadvantaged
In the vein of timing is everything, a new research report
took it on the chin titled The Impact of the U.S. Debit Card Interchange Fee
Caps on Consumer Welfare: An Event Study Analysis, was
published recently by David S. Evans, Howard H. Chang
and Steven Joyce at the University of Chicago Law School.
By Anne Leisz
Processingfinder.com Evans summarized the findings in a related blog post
that read, "All in all, consumers took it on the chin for $22
he topic of interchange reimbursement fees is billion and possibly more. That $22 billion is the present
always sure to draw a heated reaction from any of discounted value of the losses to consumers, starting in
the varied participants in the payments industry, October 2011 when the caps went into effect, and off into
T especially from the hordes of merchants who feel the future."
that the benefits from payment cards are grossly over-
stated by issuing banks in the United States. It is interesting to note that one of the arguments
proffered by the merchant side of the business was that
After decades of legal court battles, the merchant high interchange fees disadvantaged consumers, since
community was finally rewarded with fee reductions merchants had to charge more to recover them over time.
incorporated in the Durbin Amendment to the Dodd- This populist appeal may have swayed opinions, but
Frank Wall Street Reform and Consumer Protection Act. reports by economists in the past have often revealed that
The amendment was introduced by then Sen. Richard pass-through of direct cost reductions are rarely realized
Durbin, D-Ill., and is commonly referred to as the Durbin in equivalent price reductions at the POS, especially for fee
Amendment. After two years of implementation, however, changes of this magnitude.
it does not appear that merchants have passed much of the
benefit back to consumers. But as the report relates, on a gross basis the Durbin
Amendment did produce over $7 billion on an annual basis
The Durbin Amendment is one small part of the gargantuan in cost reductions for merchants and an equal amount in
2,200-page Dodd-Frank legislation that was adopted in lost revenue for banks. Did merchants pass any savings
2010. It required that the Federal Reserve place limits on onto consumers? The authors admit that it is difficult
fees charged to retailers for accepting and processing debit to measure this pass-through. If "perfect competition"
cards. Credit cards were left out of this ruling, but the legal existed, then basic economic principles support an ensuing
wrangling has continued. consumer benefit, but the market is far from perfect.
Merchants reach for more
The upshot is that banks have raised their fees significantly
The Merchants Payments Coalition, a merchant advocacy across the board, much more than the perceived losses in
group, has argued and persuaded a Federal revenue. Does this result really surprise anyone?
Court judge that the Fed was remiss
in establishing what it felt were the
most appropriate fee levels. The Fed This populist appeal may have swayed
recently filed an appeal against this
ruling. opinions, but reports by economists in the
past have often revealed that pass-through of
The Fed had made an original
proposal to set debit interchange at direct cost reductions are rarely realized in
12 cents a transaction back in 2010,
but after the typical comment period equivalent price reductions at the POS.
that precedes implementation,
the fee morphed to 21 cents and a
0.5 percent fraud tax, which is still less
than the average 44 cent debit interchange fee before the Anne Leisz has been the Head Editor of Processingfinder.com
amendment. since 2012. A 2006 graduate of Daytona State College, she
writes articles based on her international payments knowledge
Shortly after this new fee structure took effect, the "Big gathered in the field alongside her esteemed colleagues of pay-
Three" – Bank of America Corp., JPMorgan Chase & Co. ments industry professionals and financial analysts. She can be
and Wells Fargo & Co. – began complaining in quarterly reached at anne.leisz@processingfinder.com.
reports that the new rules had resulted in hundreds of
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