Six years ago, when President Obama signed the Dodd-Frank Act into law, America’s retailers got a big reduction in the debit-card fees they pay banks. Now, with Donald J. Trump set to take office, they’re preparing for a lobbying fight to defend that legislative victory — and the billions they’ve saved as a result.
Retail industry trade groups are rallying their base to try to beat back a part of the Financial Choice Act, a bill sponsored by House Financial Services Committee Chairman Jeb Hensarling that advanced in September after a 30-26 vote in an acrimonious panel markup. The measure takes a red pen to the core language of Dodd-Frank, including an amendment by Sen. Richard Durbin, the Illinois Democrat. His measure capped interchange fees — the payments retailers make to banks that issue debit cards whenever a customer swipes.
Though Trump’s plan for banking regulation is still unclear, his administration is widely expected to adopt a version of Hensarling’s bill. And if a repeal of the Durbin Amendment survives in the final iteration, that would mean pain for a retail industry already ailing from declines in brick-and-mortar store traffic and a sales slowdown. Prices for consumers would almost certainly go up.
“The retail industry is the most competitive industry in the U.S. with the narrowest profit margins of any major industry,” Mallory Duncan, senior vice president and general counsel at the National Retail Federation, said in an interview. In a Nov. 9 blog posting, the NRF vowed to “continue to work to have that provision removed from the measure.”
Not surprisingly, banks are cheering the likely rollback of Dodd-Frank. And their customers may have reason to as well. The biggest banks recouped an estimated $14-billion-a-year loss by curtailing debit-card rewards programs, adding or increasing fees for checking accounts and ATM transactions, and pushing consumers into credit products that generate more than triple the revenue. At least some of those protective measures could be scaled back.
“You may see banks compete and pass some fees on to consumers — or less price increases,” said Larry Berlin, an analyst at First Analysis Corp. More likely, banks will offer free checking accounts at lower deposit levels, or services for free or at reduced rates, he said.
The Durbin Amendment capped debit interchange fees for big banks at 21 cents per transaction, while allowing them to collect an additional 0.05 percent of each transaction to cover fraud costs and 1 cent for adhering to certain fraud-prevention standards — an average of 24 cents. Previously retailers were paying around 44 cents.
When the final rules went into effect in October 2011, Bloomberg Government estimated the new cap would cost Bank of America Corp. $1.29 billion, JPMorgan Chase & Co. $959.2 million, Wells Fargo & Co. $769.2 million and Citigroup Inc. $573.2 million.
The following year, retailers saved $8.5 billion and passed along $5.87 billion of that savings to customers, according to a 2013 study cited by the National Retail Federation.
Some large banks disagree with that estimate. Retailers pocketed $36 billion from the Durbin provision, “turning it into nothing more than a merchant markup that pads bottom lines,” according to a statement from the Electronic Payments Coalition, a trade group that represents banks and card networks.
“Since 2011, the legislation has only harmed customers and placed undue stress on financial institutions and their ability to offer low-cost products,” a number of banking industry leaders, including Consumer Bankers Association chief executive officer Richard Hunt, wrote in a June op-ed for the Washington newspaper The Hill.
While the Hensarling legislation won’t become law anytime soon, bank lobbyists see it as a positive development that puts them back on offensive after getting beaten down by retailers for most of the decade.
“The environment for changes to Dodd-Frank is probably as good as it’s been since the enactment of legislation,” Ryan Donovan, chief advocacy officer at Credit Union National Association, which supports a repeal of the Durbin Amendment.
Representatives for Texas Republican Hensarling didn’t return a request for comment. A representative for Durbin cited a September statement by the senator calling a repeal of his amendment “like dropping an $8 billion per year tax increase on America’s small businesses to benefit” the big banks.
A repeal of his amendment could also have some trickle-down effects. Today, whenever a customer uses a debit card through PayPal Holdings Inc. and Square Inc., these payment processors only pay larger banks involved in the transaction 20-some cents. But they charge merchants a flat percentage-of-transaction fee: 2.75 percent of a swiped card transaction in the case of Square. If the Durbin Amendment is eliminated, PayPal and Square could charge retailers more.
PayPal spokeswoman Amanda Christine Miller said it’s too premature to comment on the matter. Square declined to comment.
This all could force retailers to introduce their own mobile-payments solutions, said Richard Crone, of researcher Crone Consulting LLC. Used with store-branded cards, mobile wallets could take up the slack for a spike in debit fees, he said.
“We see them moving more to innovation and negotiation in managing their payment costs,” Crone said. “Mobile payments — using that innovation to redefine new payment terms.” Already, Kohl’s Corp. is pushing a new mobile wallet with its own branded charge card. Osama Bedier, CEO of Poynt Co., which sells its payments terminals through financial institutions, said a Dodd-Frank rewrite could even push tech startups to work together with banks, rather than compete with them.
“It removes a lot of shackles,” Bedier said. “Banks are very happy.”