The American Consumer Institute is concerned to learn that a letter has been sent by a few U.S. legislators, led by Senator Dick Durbin of Illinois, to Visa Inc. and Mastercard Inc. regarding reports of pending increases in interchange fees on merchants. The letter expresses misplaced fears that such plans would lead merchants to pass on higher interchange fees, also known as swipe fees, to consumers who are already struggling from high inflation. It is worth noting that these credit card companies had previously delayed raising interchange fees and have also announced plans to lower fees for small businesses.
History tells us that price controls always fail and often harm those that they were intended to help. This was, in fact, the case for the Durbin Amendment, which was named after the author of the letter in question. The Durban Amendment required the government to place a cap on the amount banks can charge merchants for debit card transactions. This cap on transactions, while intended to help consumers, soon proved disastrous for those who had benefited from a wide range of complimentary and popular programs and services, including free checking accounts, zero liability protection, and debit card rewards programs.
To make matters worse, there is little evidence that any savings were actually passed onto consumers. A University of Chicago study published in 2013 found that consumers likely lost between “$22 and $25 billion” as a direct result of the Durbin Amendment. Recent estimates put this number at $106 billion.
Lower-income Americans also suffered as a result of the Durbin Amendment. Hundreds of thousands of people were forced to exit the banking system where they found it much more difficult to access cheap lines of credit and make regular financial transactions. A 2017 study by the International Center for Law and Economics found that the Durbin Amendment contributed to a loss of between $1-3 billion per year for these consumers.
The American Consumer Institute believes the Durbin Amendment has proven disastrous for consumers and there is little reason think that a similar cap on credit card interchange fees would be any different.