How Proposed Interchange Caps Will Affect Consumer Costs

Abstract

This paper reviews how analysts have measured the effects of debit card interchange rules under the Durbin Amendment (15 U.S.C 1693o-2) and what their results suggest about the likely effects of proposed reductions in debit interchange caps. It will show that econometricians have found strong and measurable evidence that bank customers paid more for banking services because of the Durbin Amendment debit interchange caps, while the amount of any theoretical pass-through of savings from merchants to their customers has not been proved and is likely unmeasurable. The paper concludes by using these results to estimate the effects of currently proposed reductions in debit interchange caps.

Keywords: Financial regulation, payments, debit cards, interchange, consumer banking, checking accounts, Durbin Amendment, Regulation II, Dodd Frank, CARD Act, econometrics, two-sided markets

JEL Classification: C01, G21, G28, K29, L59, L84, L88