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

Will the Tester Amendment Be Part of the Small Business Bill?

More than a month has passed since Federal Reserve Chairman Ben Bernanke wrote Congress about missing the April deadline to issue the final rule on debit card interchange and network exclusivity. "Delay Durbin" proponents and opponents have been locked in battle on Capitol Hill, in the news media and in the courts. At this writing, we do not have a winner.

Still up in the air is whether Montana
Democrat Jon Tester's "stop and
study" bill regarding the
Durbin Interchange Amendment will
be part of any small business bill
that makes it out of the Senate.

Congress returned to work after a two week recess. Sen. Jon Tester's (D-MT) amendment to "stop and study" the Durbin Amendment remains pending to S. 493, a small business innovation bill. The Senate has had S. 493 under consideration since mid-March in an off-and-on capacity. Sen. Majority Leader Harry Reid (D-NV) sought to end debate on S. 493, but the vote failed 52-44 (60 votes were required to end debate). Once the vote failed, the Senate tabled further consideration of S. 493 while both sides attempt to resolve several "contentious' amendments such as regulatory reform and budget cuts. The Tester amendment remains in limbo.


More House members signed on as cosponsors to H.R. 1081, the House version of Sen. Tester's efforts. The total is more than 90 as of this week. Two Republican members from South Carolina (Reps. Joe Wilson and Jeff Duncan) removed their names as cosponsors recently suggesting the tug of war between the financial services industry and retail community is alive and well.


Back to the Senate side, leaders will likely reach a deal on final amendments to the small business bill in the coming days or decide to shelve it all together. My sense is a deal will be struck, but the question remains whether a vote on the Tester Amendment is part of the deal. If it doesn't happen with the small business bill, Tester will look for another legislative vehicle as the clock ticks toward July 21.

Will the Tester Amendment Be Part of the Small Business Bill?

A Tester Vote Could Be a Week Away

Could a vote on delaying implementation of the Durbin Interchange Amendment be far off? According to The Las Vegas Review Journal, maybe not. 

Senate Majority Harry Reid continues to work with both Sen. Jon Tester, D-Montana, and Senate Whip Dick Durbin, D-Illinois, on the details of Tester's bill, which would delay implementation of Durbin's long-sought cap on debit card interchange, says the Review Journal.

The Senate will try to finish consideration of its small business bill (S. 493) the week of May 2. The article suggests a vote on the Tester amendment is likely.

On the House side, the Financial Services Committee released a tentative May hearing/mark up schedule. Rep. Shelley Capito's bill (H.R. 1081) is nowhere to be found. The House continues, it appears, to be content to let action happen on the Tester Amendment first.

DIA.org will report on whether Federal Reserve Chairman Ben Bernanke provides any information on the final rule's timing at his press conference--as well as the Senate's floor schedule for May 2.

A Tester Vote Could Be a Week Away

Interchange, Durbin and Small Institutions

The Durbin Interchange Amendment exempts thousands of smaller banks and credit unions from the interchange fee caps proposed by the Federal Reserve on December 16. Put this in the unintended consequence file. While seemingly well intentioned, in effect the law would create an unsustainable two-tiered fee approach that would end up further disadvantaging these institutions, rather than helping them.

Last week's House hearing showed that that if there is one thing large and small institutions have in common it's dissatisfaction with this provision. It's hard to fathom why the drafters of Durbin couldn't foresee that a system where the larger banks, which contribute the volume that makes our electronic payments system work and which would be subject to Durbin's administrative pricing, would continue supporting a system where their competitors were given a ten stroke handicap.

It's also worth noting that the legislation seems to turn standard merchant agreements on their heads by opening the door for retailers to offer lower pricing to customers whose large bank-issued cards are subject to the government's administrative pricing. Or higher pricing to customers whose cards were issued by their credit union. Conceivably, the largest merchants who worked the hardest for Durbin and stand to profit the most by it could encourage customers to avoid using their credit union or community bank-issued cards altogether because they're more expensive for the retailer.

Will we also see retailers turn away those cards issued by smaller institutions because they carry higher interchange fees? It is possible that some retailers would do this. We all know the dirty little secret that some retailers for years steered customers away from signature debit to another form of tender. That other retailers set a floor limit on small, low margin purchases. That some retailers won't accept electronic payment on sale items. That's with the strict card acceptance policies in their merchant agreements. What will happen if the proposed Fed rules are finalized in their present form? Who knows?

One thing seems certain. With scores of credit unions and community banks in virtually every Congressional district, Congress will continue the dialog begun at last week's House hearing on this subject. The Fed is teeing up Congress' ball on this issue. But it might be time to take a mulligan and tee it up again.

Interchange, Durbin and Small Institutions

Sen. Durbin Fires Back on Debit Fees Interchange Debate

Never let it be said that Illinois politicians don't know a good fight when they see one. Sen. Dick Durbin (D-IL), the sponsor of the so-called Durbin Interchange Amendment contained in the Dodd Frank Act, came out swinging against the banking industry recently in his best UFC impersonation.

In a February 14 bare-knuckles letter to the American Bankers Association, The Senate minority whip, called the banking industry's public comments about the Durbin Interchange Amendment "misleading" and "distorting," and accused the industry of "using scare tactics" when opposing his long sought bill.

Sen.Dick Durbin (D-IL)

Sen. Durbin also accused bankers of making "misleading claims" about debit card fraud costs, presumably to justify their case against capping interchange.

In fact, Sen. Durbin countered the industry's accusation that the amendment amounts to price controls by accusing Visa and MasterCard of "price fixing," presumably without the imprimatur of Congress that the price caps contained in Durbin have.

He also defended himself against the jab that Durbin will harm consumers. Consumer groups widely support the bill, according to Sen. Durbin.

I appreciate the fact that Sen. Durbin took the time to write. And I hope that our friends over at the ABA take the time to read his lengthy letter.

But when you cut through all of it, you have to admit that telling a company it can only charge no more than 12 cents for a service does kind of sound like you're putting  lid on the price of that service, no matter how much you justify it.

And when publicly traded companies include in their 10-Q reports to the SEC that they're concerned Durbin will cost millions of dollars in revenue and that it may have a material effect on operations down the road, I don't think you can call that scare tactics. I don't think the SEC scares easily. And I don't think public companies scribble anything into a public filing that comes into their heads, like it was the essay portion of the SATs.

Sen. Durbin can rightly claim that consumer groups have lined up behind his bill. But even he would have to admit that these groups rarely if ever--okay, never--advocate a pro-banking or pro-industry position. So I think you have to discount that support.

The fact is that there is still a good deal of opposition to this bill and it grows every day. No amount of purple prose splashed up on Capitol Hill will change that right now.

Let's hope we get a calmer, more rational look at the facts over on the House side in the February 17 hearing.

Sen. Durbin Fires Back on Debit Fees Interchange Debate

Witness List Emerges for Durbin Interchange Amendment Hearing

Details are beginning to emerge on who will be appearing before the House Financial Institutions and Consumer Credit Subcommittee's February 17 hearing on the Durbin Interchange Amendment regulating debit card swipe fees.

According various news reports, the tentative witness list includes Federal Reserve Governor Sarah Raskin, Visa General Counsel Joshua Floum, 7-Eleven Vice President and Treasurer David Seltzer and Commerce Bank Chief Executive David Kemper. The subcommittee will post the final witness list soon.

Representative Kenny Marchant (R-TX) raised concerns over the Federal Reserve Board's proposed rule on interchange to Chairman Ben Bernanke when he appeared before the House Budget Committee on Wednesday. Marchant also is the second ranking member of the House Financial Institutions subcommittee. Marchant asked Bernanke if the FRB had the authority to delay the implementation of the Durbin Amendment (the final rules are due by April 22 and implementation begins July 21).

EFTA will have a complete recap of the Feb. 17 hearing in next week's posting.

Witness List Emerges for Durbin Interchange Amendment Hearing

Push Grows to Change Proposed Fed Rules on Durbin Interchange Amendment

While industry groups begin to put the finishing touches on their response to the Fed’s NPRM onthe implementation of the Durbin Interchange Amendment (due February 22), Republicans and Democrats alike continue to question the wisdom and effect of a 12 cent cap on debit card interchange rates.

According to Bloomberg News, HFSC Ranking Member Barney Frank (D,MA) recently offered to work with Republicans on the committee who seek to change the Fed’s proposed debit card rate cap. 

It seems that momentum is building for some kind of bipartisan action along these lines in the House.  The House may well use the February 17^th hearing on Debit Card Interchange Fees as a means by which to seek a legislative “fix” to the Fed’s proposed cap.

One way to gauge the potential effectiveness of this effort will be to see the as yet unannounced witness list and to hear the questions members on both sides of the aisle will ask those testifying.

While the Senate took the lead on the interchange rate debate in the 111^th Congress, it is apparent that the House will be doing so in the 112^th.

Push Grows to Change Proposed Fed Rules on Durbin Interchange Amendment

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