U.S. Sen. Dick Durbin, a Democrat from Illinois, introduced on April 23 that he’ll retire after his present time period ends in January 2027.
Whereas he isn’t what you would possibly name the Senate “finance man” — he’s the highest Democrat on the Senate Judiciary Committee, not the Banking Committee — Durbin has been impactful on various legislative monetary actions over his many years of service.
Particularly, he helped reshape debit card processing charges in a serious manner with the Durbin Modification again in 2010. Extra just lately, he’s been working to shake up the bank card interchange panorama as a sponsor of the Credit score Card Competitors Act.
Whereas he’s positioned his efforts as pro-consumer, the outcomes — or anticipated outcomes — of his efforts haven’t at all times handed shoppers a win.
What did the Durbin Modification do?
The eponymous Durbin Modification (a part of the Dodd-Frank Wall Road Reform and Shopper Safety Act) enormously lowered the debit card processing charges that retailers pay banks each time a buyer makes use of their card. The act was signed into legislation in 2010.
Amongst different issues, the modification restricted the debit interchange charge to a most of 0.05 p.c of the transaction worth plus 21 cents (with an additional cent for fraud safety). In apply, this introduced the common debit card processing charge down 52 p.c (from 50 cents to 24 cents), in keeping with the Worldwide Heart for Regulation and Economics.
Retailers, as you would possibly anticipate, rejoiced, however the internet impact on shoppers wasn’t as optimistic as supposed.
Although their transaction prices had decreased due to the Durbin Modification, most retailers didn’t go these financial savings on to shoppers. In reality, only one p.c of outlets lowered costs, in keeping with the Richmond Fed. And, in a further blow to shoppers, banks reacted to receiving decrease interchange charges by scaling again debit card rewards packages, elevating different charges (resembling ATM and overdraft charges) and making it tougher to get a free checking account, the Cato Institute studies.
The Durbin Modification was properly intentioned, however market situations backfired and prevented shoppers from realizing the specified value financial savings. Sadly, this typically occurs with charges. They are often like Whack-a-Mole — one goes down, one other comes up.
Durbin goes after bank card interchange charges with the Credit score Card Competitors Act
Extra just lately, Durbin has set his sights on lowering bank card interchange charges.
Retailers like to complain about these levies (the common is about 2.2 p.c, in keeping with The Nilson Report). The Retailers Funds Coalition says bank card processing charges are most retailers’ highest value other than labor, totaling a file $187.2 billion in 2024. Durbin is the chief architect of the Credit score Card Competitors Act (CCCA), a invoice first launched in 2023 that seeks to decrease retailers’ interchange charge burden, however in a different way than the Durbin Modification did for debit playing cards.
The Credit score Card Competitors Act seeks to scale back charges by selling extra competitors within the cost processing market (that sounds pleasant, however I fear about unintended penalties). It might mandate that bank card issuers with property over $100 billion allow no less than two networks for every transaction, and retailers may then select which to make use of. Durbin has assailed Visa and Mastercard for allegedly participating in a price-fixing duopoly. The CCCA contains the supply that Visa and Mastercard can’t be the one out there networks. A card issuer may maybe provide Visa and American Categorical, for instance. Or Mastercard and Uncover. There additionally appears to be the hope that smaller networks may emerge and function lower-cost options.
All of it sounds effective in concept, and it’s not a tough cap like we noticed with the Durbin Modification’s modifications to debit card interchange charges, however the impact on shoppers could possibly be related — lowered bank card rewards, much less entry to credit score and better charges in different areas.
Proponents, together with Durbin and others, argue that retailers will decrease costs, however they didn’t accomplish that when debit interchange charges have been capped, so it appears unlikely they are going to this time round.
Nonetheless, seizing on a Populist wave that has swept throughout each main political events, the Credit score Card Competitors Act has gained notable co-sponsors from each side of the political aisle, showcasing Durbin’s fame as a bipartisan consensus builder.
The invoice hasn’t come to a vote; it’s twisting within the political winds. Durbin’s looming retirement may kill its momentum, or it may ignite a late-game push to cement Durbin’s legacy as an interchange-fee fighter.
Just like the push to cap debit interchange charges, Durbin and his co-sponsors try to advocate for shoppers by way of the Credit score Card Competitors Act. However the monetary business gained’t take any threats to its income mannequin flippantly. Interchange charge reform appears more likely to profit retailers than shoppers. There aren’t any simple solutions, however I imagine the present system is best (when it comes to rewards, entry to credit score and extra).
The underside line
Durbin has turn out to be synonymous with interchange charges within the monetary world, however his general legacy is way wider-reaching. In a current retrospective, the Related Press detailed legislative accomplishments starting from banning smoking on airplanes to prison justice system reform, immigration reform and extra.
Actually, banks will most likely want Durbin a contented retirement and hope he takes his interchange charge microscope with him. Within the 12 months following the implementation of the debit card interchange cap, the aforementioned Cato Institute report says banks misplaced out on between $5.1 billion and $7.4 billion in income. Sadly, most of that appeared to line retailers’ pockets, moderately than offering shoppers with reduction.
Have a query about bank cards? E-mail me at ted.rossman@bankrate.com and I’d be pleased to assist.
