WASHINGTON – As part of the Dodd-Frank Wall Street Reform Act, Congress reformed the debit-card swipe fees that banks charge merchants. The regulations have now been in effect three years and in that time, the debit reform — known as the Durbin Amendment for the senator who introduced it — has created tens of thousands of jobs and saved consumers billions of dollars.
Debit reform has reduced the bloated ‘‘swipe fees’’ the nation’s largest banks charge merchants to process the transaction every time a customer swipes a debit card.
“Debit reform has been good for consumers and good for businesses,” said NACS Senior Vice President of Government Relations Lyle Beckwith. “Everyone has saved now that there are some limits on price-fixing by card networks.”
In fact, Robert Shapiro, an internationally known economist, studied the impact of debit-card reform in its first full year, 2012, and found that consumers saved nearly $6 billion and that merchants created 37,500 new jobs as a result. Extrapolating those findings, consumers have saved almost $18 billion over the three years reform has been in effect and merchants have created more than 100,000 new jobs.
Had the Fed not buckled under to bank pressure, Shapiro’s findings indicate the savings would have been almost $27 billion over the last three years with 166,000 new jobs.
“Consumers are hurt by high swipe fees,” said Ed Mierzwinski, federal consumer program director for the consumer group U.S. PIRG, according to a press release from the Merchants Payments Coalition. “Debit reform has been a real benefit.”
Consumers have also saved on bank fees they pay since debit reform came into effect. In early September, the Federal Deposit Insurance Corp. found that banks now make less of their money from customer fees than at any time in the past 70 years. In fact, such bank fees had risen every year since 1942 but have fallen 21% since 2009.
Unfortunately, banks continue to reap even more money from credit-card swipe fees year after year, despite increases in volume and innovations in technology that would make the process much cheaper in a truly free market. A new report published by the Federal Reserve Board reveals further evidence that big banks continue to reap huge dividends from the fees they charge for debit card transactions, turning profits as high as 445% on transactions.
Overall, swipe fees are many merchants’ second-largest operating cost and fastest-growing expense. And swipe fees in the United States are the highest in the industrialized world. Clearly, reform works for debit cards and is needed for credit cards in order to get savings to merchants and their customers and to create more jobs.