Durbin Delusions

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If you follow me on Twitter, you know that I’m fond of responding to delusionary and BS tweets by saying “don’t bogart that joint–pass it over to me.” It’s a reference to a line from a Little Feat song (if you’re not familiar with the song–or God forbid, the band–please leave this site now, and go back to listening to your little hippity hop Pandora station).

I’m reminded of that line–once again–by a press release (dated September 30, 2014) from the Merchants Payment Coalition which made the following claim:

“Debit card reform has helped consumers save almost $18 billion and supported 100,000 new jobs in three years.”

My take: Total BS.


The date of the press release is important because the savings claims come from a 2012 study which claimed that, after its first year of implementation, the Durbin Amendment saved consumers $6 billion, and that merchants added 37,500 jobs as a result of the regulation.

The claim of $18 billion in savings and more than 100,000 jobs created comes from (as the press release puts it) “extrapolating those findings.”

Unfortunately (for the MPC), these claims hold the water. Below is a chart showing retail employment trends from the Bureau of Labor Statistics. What it shows is that:

  1. Between January 2004 and January 2008, when pre-Durbin interchange rates were in effect, retail employment grew by half a million jobs. In other words, despite so-called “unfair swipe fees.” retailers added jobs to their payrolls.
  2. Between January 2008 and January 2010, more than a million retail jobs were lost. You could argue this, but I’d say the overall economy caused that, more so than high interchange fees.
  3. Between January 2010 and January 2012, about half a million retail jobs were added back. Since the Durbin Amendment didn’t go into effect until October 2011, it’s a stretch to attribute too many of those jobs to the regulatory changes.



What about those $18 billion in savings we consumers have supposedly seen? The MPC conveniently ignores other studies, like one published in the Loyola Consumer Law Review, titled
Misguided Regulation of Interchange Fees”, which found:

“Gas retailers received over $1 billion in annual savings due to reduced interchange fees.While this should mean savings of roughly $0.03 per gallon, no savings have been passed on to consumers. This is especially  disconcerting as debit cards account for one third of all transactions and over half of non-cash payments for gas retailers. If retailers that receive such a significant portion of their payments from debit cards are not passing along the saving to consumers, it is likely most retailers would refrain from doing so as well.”

The Loyola paper cited an Electronic Payment Coalition that found that “consumer prices one year after the implementation of the Durbin Amendment actually rose 1.5%.” The Loyola paper, however does point that the EPC study “failed to hold certain factors such as inflation constant, [so] it is unclear the actual effect the Durbin Amendment had on consumer prices.” In addition, the Loyola study points out that “small business owners were forced to raise prices for consumers because of the interchange regulations.”
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An academic study titled Recent Trends and Emerging Practices in Retailer Pricing points out that “retail consolidation, changing manufacture practices, and advances in technology directly affect both retailer cost and prices. In addition to the medium or channel (Internet vs offline), other marketing mix variables, such as advertising and promotion, customer factors, positioning of the retailer, and competition within and across channels or store formats, influence retailer prices.”

In other words, the MPC’s claims of consumer savings resulting from the Durbin Amendment are without merit.

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