Economic Analysis of Claims in Support of the ‘Durbin Amendment’ to Regulate Debit Card Interchange Fees

Abstract

Section 1075 of the 2010 Dodd-Frank Act requires the Federal Reserve Board to regulate the debit card industry including the interchange fee banks and credit unions receive from merchants. This paper reviews the arguments in support of this regulation put forward by Senator Durbin, who proposed the amendment that led to Section 1075, large retailers, and merchant trade associations. Contrary to their claims, the leading government entities that have examined interchange fees specifically reject the approach taken by the Durbin Amendment; no US antitrust authority or court has found that MasterCard or Visa have engaged in price fixing with regard to debit interchange fees; debit card interchange fees have not increased materially over time in the US; Canadians have not benefited from zero debit interchange fees in that country since they pay more for using cards, and retail banking accounts, than Americans and since Canadians cannot use their zero-interchange fee debit cards to pay online or internationally; and consumers and small businesses will not benefit from the planned reductions in interchange fees, in fact they will lose hundreds of millions of dollars a year.

Keywords: Interchange Fees, Debit Cards, Regulation, Financial Regulation, Federal Reserve Board, Durbin, Payment Cards

JEL Classification: L4, L5