Durbin Amendment Price Control Raised Prices for Consumers  

The Durbin Amendment, a component of the Dodd-Frank Wall Street Reform Act passed 14 years ago, promised to lower consumer prices by regulating interchange fees on debit cards. That promise has failed to hold up, demonstrating the futility of price controls.  

The Durbin Amendment authorized the Federal Reserve to regulate interchange fees card issuers could charge merchants. Interchange fees are fundamental to card issuers and help pay for network security, and the infrastructure that underpins the convenience of electronic payments. 

A study by the Richmond Fed shows that most retailers chose not to change prices following the enactment of the Durbin Amendment. Even more eye-catching is the fact that more retailers chose to increase prices than decrease them.  

The lesson of the Durbin amendment demonstrates price controls never wind up achieving their objective of actually lowering prices, instead shifting them elsewhere back onto the consumer.  

Other studies show that the revenue lost to the Durbin amendment caused fees on checking accounts to increase. Had the Durbin amendment never been enacted, most checking accounts would be free of cost.  

Debit card rewards became obsolete because of the Durbin amendment’s enactment. Credit cards, whose interchange fees are not expressly regulated, allow for the funding of beneficial rewards programs, allowing card users to enjoy exclusive benefits and discounts on everything from airline miles to hotel stays and cashback on everyday purchases, sometimes in excess of annual cardholder fees.  

The electronic payments system, which is widely prevalent in the US, benefits merchants and consumers alike. Consumers benefit from the security offered by cards, and merchants enjoy higher ticket purchases from card users than those using cash.  

The security, reliability, and anti-fraud measures of cards allow consumers to shop with peace of mind.  The funding for these costs is funded by interchange fees. Limiting the revenues companies can collect on certain services will invariably lead to a drawback or reduction of those services so companies can focus on making profits through other lines of business.  

The effects of interchange fee regulations can be observed abroad in jurisdictions such as Europe where interchange fees are capped at 0.2%. In most European countries, cash is the preferred method of transaction for merchants and consumers. Fewer Europeans have access to credit cards than Americans, and rewards programs are near non-existent.  

Attempts to regulate credit card interchange fees will bring about the same negative outcomes as the Durbin Amendment. 

Price controls are universally regarded as bad policy in any domain they are implemented. Policymakers should reflect on the Durbin Amendment as another case study in the failure of government intervention in markets. Congress should avoid further meddling in the payments space to allow innovators and free market enterprises to deliver for consumers.