We continue to endure what is being called the “worst recession of our lifetime.” Add to this the political and economic uncertainty here and around the world, we definitely are living in interesting and challenging times. Families, communities, and businesses are a little battle-worn. Stubborn high unemployment and a weak housing market continue to baffle policy makers and government officials – hinting that the solution lies elsewhere.
Recent legislation, aimed at helping to solve the financial challenges, appears to have actually made some things worse and prolonged the recovery.
Some months ago I told you about one such piece of legislation – The Durbin Amendment. (See Newsleter Article) This legislation was an amendment to the controversial Frank-Dodd Act. The Durbin Amendment took the power of competitive market forces to set debit card transaction fees and gave this power to the government. Heavily supported by large retail chains, the amendment barely passed Congress. Attempts to defeat it in the Senate received a majority of votes (including Senators Hatch and Lee from Utah) but fell short of the 60 votes needed to overcome a senate filibuster. The Durbin Amendment went into effect this year – and it is already costing consumers millions of dollars.
We warned then that the passage of the Durbin Amendment would take as much as $18 Billion from financial institutions and give it to the retail industry. Meanwhile, financial institutions would be left with the costs of providing debit cards and still be responsible for security, fraud investigation, and fraud losses – thus being forced to make up for that lost revenue by finding other fee income. The retailers countered that consumers would benefit from the Durbin Amendment in the form of lower prices at their stores. We warned that rather than seeing lower prices, most consumers would pay for the retailers’ windfall by facing new or increased banking fees.
I wished I could tell you that I was wrong.
Since the Durbin Amendment passed and went into effect the following has happened:
- The Fed cut the debit card interchange fee amount received by financial institutions by about half.
- Financial institutions have begun seeing up to a 45% decrease in debit card transaction fee income.
- Nearly all debit card reward programs for consumers have been cut since financial institutions can no longer afford to offer them.
- Financial institutions have begun phasing out free checking and have begun instituting new minimum balance and other requirements to avoid monthly checking fees. (Debit and checking fees were used to subsidize and cover the costs of checking and debit card programs thus allowing them to be offered free. When the debit interchange fee income was reduced, monthly checking fees began to re-emerge to cover those costs.)
- More and more of the major banking institutions have begun charging monthly fees to customers who use their debit card. (USA Today BofA Article) Since the income that used to come to financial institutions now flows to the retailers, debit card fees help replace that lost income. Unfortunately this fee is paid by the consumer now instead of the retailer.
- Consumers are outraged at the new fees and threaten to move their accounts to credit unions and smaller community banks to avoid the fees. (Washington Post Article)
- More and more smaller institutions, including community banks and credit unions have begun implementing or considering checking and debit card fees. (Watch Video)
- Even not-for-profit credit unions are forced to consider alternatives for replacing the lost income. Some have begun to limit rewards, add balance requirements, or charge fees. Now only 70% of credit unions offer free checking – and the number is falling.)
Consumers Lose, Again
I have nothing against Home Depot – they are a great company – but consider the response of Home Depot’s Executive VP of Corporate Services and CFO, Carol Tome’ when she responded that based on initial draft regulations of the Durbin Amendment, “the benefit to the Home Depot could be $35 million a year.” Consumers will be now be paying for that $35 million in the form of debit card and checking account fees.
Or, listen to the response of Senator Durbin himself, when he recently told a group of reporters in Nashville, “The retailer will be more profitable. That’s what’s behind this.”
It is estimated that as much as $18 Billion a year will move from financial institutions to retailers as a result of this misguided legislation.
UCCU is doing all it can to keep checking and debit cards free for members.
Rest assured, we are doing everything we can to maintain free checking and debit card programs at UCCU. We currently have no plans to implement checking or debit card fees. However, we are expecting to see a sharp decrease in debit interchange fee income from the retailers as a result of the Durbin Amendment.
I believe that market forces and competition are the best way for prices to be set and services to be offered. It just seems that whenever the government gets involved, it is the consumers and citizens who end up paying the bill.
What’s Next? How Can You Help?
Thank You, Representative Jason Chaffetz!
We applaud the tenacity, courage and foresight of our Congressman, Jason Chaffetz, who recently introduced H.R.. 3156 to REPEAL the Durbin Amendment. There is growing support to get rid of this bad legislation and allow the market to set prices instead of the government. The result of repealing the Durbin Amendment will be the restoration of the debit interchange income and with it the ability to continue offering checking and debit programs free to consumers. We ask you to support H.R. 3156 and send your support to Congressman Chafetz (Article on Chaffetz). Thank you, Jason!
Your Credit Union is Strong and Healthy
Meanwhile, we remain grateful to you and are pleased to be your financial partner. We strive to offer you, our member, the best value in financial services and the highest levels of convenience and security in managing your financial affairs. We know that the credit union model is the best way to serve you. Despite the economic challenges of the day, your credit union remains financially healthy. And despite the growing regulatory and legislative challenges, we remain committed to providing you with friendly professional service and great value in financial services.
Utah Community Credit Union