The Green Sheet Online Edition
June 6, 2016 • 16:06:01
EPC study takes aim at Durbin supporters
The Electronic Payments Coalition recently released an analysis of the impact of the Durbin Amendment to the 2010 Dodd-Frank Act. It differs sharply with prior positive reports on the amendment's impact on consumers. Citing independent research by the Federal Reserve, the new analysis dispels claims that the amendment's mandated cap on debit card interchange rates has led to job creation and consumer savings, according to the EPC.
The study, titled Durbin Amendment Has Not Led to Consumer Savings or Employment Gains, Contrary to Retailer Claims, is critical of Durbin Amendment supporters who maintain the amendment has generated an estimated $8 billion in annual interchange fee savings in the form of lower consumer prices and added payrolls. Many Durbin supporters have cited a 2013 study by economist Robert J. Shapiro that contains numerous inconsistencies, the EPC stated.
Durbin's sole beneficiaries: merchants
"The study is fundamentally flawed and presents an inaccurate picture of the true impact of the Durbin Amendment," said Molly Wilkinson, Executive Director of the EPC. "This is a failed policy that only benefits the special interests that pushed for it ‒ big-box retailers."
Retailers have applauded Durbin Amendment reforms, claiming that lower pricing and job creation have benefitted consumers. The National Retail Federation, National Association of Convenience Stores and Merchant Trade Association have drawn examples from the Shapiro study to show the amendment's positive effect on the U.S. economy.
The EPC challenged the methodology used in Shapiro's 2013 report and stated that merchants are the "sole beneficiaries" of any benefits related to debit interchange price caps "at the expense of consumers and the financial Industry."
Flaws in 2016 report
The EPC referenced the following as inaccuracies in the 2013 report:
- Industry propaganda: The 2013 report, underwritten by industry affiliates, is closer to an advertorial than an objective statement of fact. It is also the only report that has been widely cited by retailers, the EPC noted.
- Inaccurate data: The EPC claimed the Shapiro report ignored "the true net effect of the Durbin Amendment," overlooking job losses incurred by card issuers, payment processors and other financial service entities caused by the $8 billion loss of annual revenue. It also failed to convey the impact of increased bank fees on consumers, as more than half of U.S. banks eliminated fee-free accounts to compensate for loss of debit interchange income.
- Inaccurate assumptions: The report failed to build the case that merchants have passed savings to consumers, according to the EPC. The assumption of 70 percent pass-through savings is based on an older report published in 2009 that makes no mention of interchange, authors of the EPC report noted.
- Federal Reserve data: The EPC referenced data from a recent Federal Reserve study that indicates merchants have not passed on savings to consumers to the extent that Durbin supporters had predicted. "In fact, according to the study, nearly one in four merchants have actually increased prices since the Durbin Amendment took effect – while just 1 percent of merchants reduced prices after the regulation was implemented. Other independent research corroborates the Richmond Fed's findings," the EPC stated.
- Statistical inaccuracies: Since the Richmond Fed's data was published more than a year after the Shapiro report, the EPC exonerates Shapiro for "not using the Richmond Fed's more accurate and directly relevant pass-through statistics," but found his report to be inconclusive.
- Flawed economic model: "Finally, the Shapiro paper does not use a formal economic model to estimate the employment effects of the Durbin Amendment," the EPC report authors wrote. "Instead, the paper relies on overly broad assumptions related to the extent to which increased consumer spending and merchant cost savings support job growth."
Advocates, special interests
The Durbin Amendment has led to increased bank fees and related costs that have harmed, not helped, American consumers, the EPC noted. Additionally, any job gains resulting from Durbin reforms were more than offset by job losses in the financial sector. Merchants may choose to ignore these outcomes as they pocket additional profits from Durbin, but the "economic consequences are all too real for the millions of U.S. consumers who experience them," the EPC wrote. 
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