Both the banking industry and conservative lawmakers are hoping that the incoming Trump administration will agree to repeal the 2010 Dodd-Frank Financial Reforms, but many in the retail world are calling on Congress to retain at least the portion of the law involving debit card transactions.
In a letter [PDF] sent to Senate Majority Leader Mitch McConnell, Minority Leader Chuck Schumer, Speaker of the House Paul Ryan, and House Minority Leader Nancy Pelosi, a coalition of dozens of retail trade associations advise against throwing out all of Dodd-Frank.
The organizations — including the National Retail Federation, National Grocers Association, and National Restaurant Association — are specifically worried about the possibility of repealing what’s known as the Durbin Amendment [PDF] to the 2010 law. This amendment was intended to lower costs to retailers and increase competition in the market — dominated by Visa and MasterCard — for processing debit card transactions.
Each time a shopper uses their debit card at a checkout, the bank that issued the card is provided a fee by the merchant.
Prior to the reform, if merchants wanted to accept debit or credit cards issued by the card networks — Visa and MasterCard — they were required to pay the fee, which is set by the networks and non-negotiable.
Under the amendment, banks with over $10 billion in assets would have to charge debit card interchange fees that are “reasonable and proportional to the actual cost” of processing the transaction.
Additionally, the measure included provisions which allow retailers to refuse to use credit cards for small purchases and offer incentives for using cash or another type of card.
The groups claim that merchants have been able to drop their prices because they weren’t being charged the additional fees.
The associations also believe that the introduction of the amendment introduced competition into the debit routing space for the first time by requiring each debit card to have a minimum of two unaffiliated networks enabled on the card. This led companies like Visa to have to compete with other debit networks for retailers’ business, the letter states.
“The reforms in the law have benefitted American consumers, merchants, small financial institutions, and the economy as a whole,” the letter states. “Repealing or weakening the law will provide a windfall for fewer than 2% of the country’s largest banks and remove any and all competition from the debit routing market.”
Still, opponents of the reform, including many big banks, contend that retailers don’t pass along the savings, that the cap has led to additional checking fees for customers, and that banks’ bottomlines would suffer.
Despite this, the associations believe these points have been disproven over time, and hidden swipe fees continue to bring in $79 billion for banks.
“As representatives of retailers and employers from every state and congressional district in the country, we ask you to join us in opposing any effort to weaken or repeal these important debit reforms,” the letter states.
Of course, it will remain to be seen just how the legislators will act when it comes to the CFPB and Dodd-Frank. However, many may have the banks’ interests in mind.
For example, Speaker of the House Ryan is the most bank-backed member of the House, bringing in more than $311,000, according to the Center for Responsive Politics. Schumer is among the top 10 senators receiving contributions from the commercial banking industry.