If you'd like a really clear, concise description of the Durbin Interchange Amendment, including its background and analysis on the latest development, Federal Judge Richard Leon's interchange price rollback decision earlier this month, I recommend "The Dick Durbin Debit Card Fiasco," by Richard Epstein.

Mr. Epstein, who worked as a legal consultant on a failed constitutional challenge to the Amendment,  provides an insider's perspective on Durbin--who the parties involved in interchange actually are, how the funds flow and why Durbin is bad law and worse policy. To read the full article, visit "Defining Ideas," a publication of the Hoover Institution. http://www.hoover.org/publications/defining-ideas/article/153401.

Durbin Channels His Inner Captain Renault

The calendar turned October 1 last Saturday. The sun rose in the east. Taxes were paid. Birds began migrating southward. But, to those paying attention to Bank of America’s announcement of a $5 monthly charge for debit card usage, you would have thought Armageddon was upon us.

The Durbin interchange rules on debit cards began October 1. The Federal Reserve Board delayed the implementation (July 22 was the date spelled out in Dodd-Frank) because the government price setting isn’t an easy thing to do apparently. Prior to passage of the Durbin Amendment to Dodd-Frank, the Fed determined issuers were receiving an average of 44 cents on a debit card transaction. Given the narrow parameters the Durbin Amendment, the Fed proposed a cap of 12 cents in December. After receiving an avalanche of comment letters, the Fed took more than six months to issue a final rule revising the cap to 23 cents with a proposed one cent fraud adjustment.

Financial institutions were already facing profitability headwinds due to the CARD Act (2009) and revised overdraft protection regulations. The Durbin amendment caused many financial institutions to reevaluate the “free checking” model that has existed for many years. A theme is at work here. Government regulation equals costs to consumers.

Channeling his inner Captain Renault, Durbin voiced great surprise that Bank of America would actually seek to recover costs associated with government pricing setting for interchange.

President Obama joined the party by suggesting the Consumer Financial Protection Bureau take a look at the fees. Rep. Brad Miller (D-NC) introduced legislation (H.R. 3077) requiring financial institutions to honor a request by consumers to close their checking or savings account within 48 hours and prohibit any fees associated with the request.

Expect the Miller legislation to be the first of many salvos from Congress in reaction to Durbin Amendment re-pricing. And, if the President is informally calling upon the Consumer Financial Protection Bureau to investigate these new charges, one need not go very far on a limb to believe the CFPB will do just that. We are under one week of the Durbin debit interchange regime and the water is already very choppy. 

Durbin Channels His Inner Captain Renault

Durbin Pulls a “Kinsley”



Commentator Michael Kinsley



Illinois Sen. Dick Durbin

What is a “Kinsley?” Attributed to journalist and commentator Michael Kinsley, it occurs when a politician commits a gaffe by speaking the truth. Sen. Durbin addressed a Nashville business forum this week and pulled a Kinsley. According to several news reports, Durbin told the audience the purpose of his interchange amendment was to make retailers more profitable. He also was quoted as saying, “That’s what’s behind this.” Make retailers more profitable? The Home Depot Chief Financial Officer must have blushed when reading that comment. Didn’t Durbin repeatedly take to the Senate Floor the last two years saying the purpose behind the government setting interchange pricing was to give “consumers” relief?



The October 1 effective date for the cap on interchange rates on debit cards is quickly approaching. This blog will resume following all developments closely on market and political trends. This will include any more “Kinsleys” from Sen. Durbin.

Durbin Pulls a “Kinsley”

A Bridge Too Far

In the end, reaching 60 votes to delay the implementation of the Durbin Amendment debit card interchange rules that had passed overwhelmingly in 2010 was always a stretch.  In this political climate, getting a majority of Senators to agree on much of anything is a daunting task.

It is somewhat heartening to know that 54 members of the “world’s greatest deliberative body” saw fit to fix one of the biggest debacles created by the Dodd-Frank Wall Street Reform Act.  I can readily understand Democratic opposition to the Tester Amendment that sought to delay the rules.  They are often seduced by a populist “help the little guy” argument no matter how disingenuous; though 17 of them didn’t fall for it this time and they are to be commended. 

It is harder to understand the motivation of the 12 Republicans that voted with Durbin on this issue.  One positive here is that this number is down from the 17 Republicans who initially voted to intervene in this marketplace last July.  I suppose I can understand the votes from Senators in a state where a retail giant like Home Depot is headquartered.  After all they are among the biggest winners in this fight.  Contrary to Senator Durbin’s plaintive pleas for the “mom and pop” shops, it is the big box retailers who will enjoy the largesse of this Congressional giveaway, or should I say takeaway.  In fact, it was the CFO of Home Depot who in a recent call with shareholders said that Durbin implementation will mean $35M to their bottom line annually.  But wait, I thought that any savings was to be passed on to consumers.  Is it savings after the $35M?

Freshman Senator John Boozman (R, AK) was a profile in political courage by resisting pressure from a rather large retailer headquartered in Bentonville, AK and voting for the Tester Amendment.  After the vote he said that he couldn’t vote for something that allowed government pricing. 

Republicans purport to be the party of free markets and less government.  In this case, Senator Barbara Mikulski (D, MD), not usually known as a big free market advocate and 17 of her Democratic colleagues were just that.  And Senator Lindsey Graham (R, SC) and 11 of his Republican colleagues were not.  At least I know who to thank when my free checking account goes away.

Republicans can point to a number of achievements.  Unfortunately their latest achievement is defeating the Tester Amendment.

A Bridge Too Far