Welcome to Durbin Central

On July 22, 2010 President Obama signed into law the  Dodd-Frank Wall Street Reform and Consumer Protection Act, calling it a “crack down on abusive practices.” With the stroke of a pen the President ushered what some are calling the most sweeping regulatory change in the financial industry since the passage of Depression-era banking legislation in the 1930s.

Remarkable for its breadth as well as its scope, Dodd-Frank ambitiously seeks to impose federal price caps on certain bank fees. It does this through its so-called Durbin amendment, which directs the Federal Reserve to determine “reasonable and proportional” interchange fees. These are fees that banks can charge for authorizing debit transactions on cards they issue.

This website is dedicated to assessing the issues, challenges and consequences that will be involved in the implementation of the Durbin amendment. We invite visitors to the site to comment on the blog posts, download any information and analysis they may require, and to check back frequently for information on any new developments in the law’s implementation. For while the debate over Dodd-Frank and Durbin made good public theater, whether it makes good public policy remains to be seen.

Already, one financial analysis says that the Durbin fee caps could result in as much as a 5% hit to the share price of both Bank of America and J.P. Morgan, two of the largest debit-card issuing banks affected by the law. What is the ripple effect of a 5% price drop for two pillars of a financial industry still recovering from 2008, as well as to a fragile economy as a whole? We simply don’t know yet.

Those of us who have been around awhile know that there are unintended consequences to any law, no matter how well-intentioned. Already a number of groups, from credit unions to state governments are concerned about the law’s implementation. Among those concerns:

·        Consumer fears that their account fees will rise as banks try to make up for the lost revenue

·        Banks may become more selective about debit cards and tie big annual fees to them

·        Government agencies whose own debit card programs are subsidized by interchange fees fear having to shift more of the program costs to their consumers and to already strapped taxpayers

For retail merchants who have long sought a cap on interchange fees the Durbin amendment may prove to be a Pyrrhic victory. While they hate interchange fees, the law may push consumers back into traditional forms of tender like cash and checks—which are much more expensive for them than simple PIN debit transactions.

Congress has set April 21, 2011 as the implementation date for the new law. The next three months will be filled with uncertainty as merchants, banks, processors and consumers try to come to grips with the implementation of the new law and its effects. We welcome you to come back here often, check our material and share your thoughts.

Welcome to Durbin Central