The Impact of the Durbin Amendment on Banks, Merchants, and Consumers

79 Pages Posted: 5 Feb 2019 Last revised: 15 Jul 2019

See all articles by Vladimir Mukharlyamov

Vladimir Mukharlyamov

Georgetown University - McDonough School of Business

Natasha Sarin

University of Pennsylvania Law School

Date Written: January 31, 2019


After the Great Recession, new regulatory interventions were introduced to protect consumers and reduce the costs of financial products. Some voiced concern that direct price regulation was unlikely to help consumers, because banks offset losses in one domain by increasing the prices that they charge consumers for other products. This paper studies this issue using the Durbin Amendment, which decreased the interchange fees that banks are allowed to charge merchants for processing debit transactions. Merchant interchange fees, previously averaging 2 percent of transaction value, were capped at $0.22, decreasing bank revenue by $6.5 billion annually. The objective of Durbin was to increase consumer welfare. For consumers to benefit, banks needed to not offset Durbin losses and merchants needed to pass through savings to consumers. Instead, we find causal evidence that banks fully offset losses by charging higher fees for their products: For example, following Durbin, the provision of free checking accounts decreases by 40 percentage points. On the merchant side, we find that retailers pass-through savings most when debit usage is common and when competitive pressures are highest. However, we find little evidence of across-the-board consumer savings. Our analysis suggests that consumers are not helped by this interchange regulation.

Keywords: Financial regulation, Debit cards, Durbin amendment, Dodd Frank, commercial banks, two-sided markets, payments

JEL Classification: G21, G28, K29, L41, L84, L88

Suggested Citation

Mukharlyamov, Vladimir and Sarin, Natasha, The Impact of the Durbin Amendment on Banks, Merchants, and Consumers (January 31, 2019). U of Penn, Inst for Law & Econ Research Paper No. 19-06; Georgetown McDonough School of Business Research Paper No. 3328579. Available at SSRN:

Vladimir Mukharlyamov

Georgetown University - McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States


Natasha Sarin (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States

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