Banking Law

In  a letter to the American Banker (paid subscription required), ICBA CEO Cam Fine tells readers why the Durbin Amendment's exemption for banks under $10 billion in assets simply won't work.

The exemption will not protect community banks or their customers because the Dodd-Frank Act shifts control over routing debit card transactions from issuers to merchants, allowing them to bypass small financial institutions and negating any benefit for exempt community banks and credit unions. Further, large retailers will be able to steer customers to use the rate-controlled cards issued by the largest financial institutions. Ultimately, the market will, over time, drive pricing for community banks in line with rates required at larger institutions.

Banks will raise fees and/or limit services to make up for the lost revenue from debit card interchange fees. It's as simple as that. It's also something that anyone could have seen coming.

The winners, according to Fine? "...big-box retailers. Large merchants will use the new government pricing restrictions to minimize their costs and shift transaction costs to consumers."

Dodd-Frank was supposed to address the causes of the financial collapse and ensure that "it never happens again." As hubristic as that goal might be, it's hard to conflate financial reform with Durbin's special interest excursions into fine tuning private market pricing of services in favor of big-box retailers who line his PAC's pockets with campaign contributions. I guess the commercial banking PACs just didn't cough up enough cash to engage Durbin's "principles" on this one.

The bankers will simply have to look elsewhere to buy the support necessary to remove this provision from the law. Fortunately for them, they're getting backup from most of the federal bank regulators. Moreover, this is one issue where credit unions and banks are speaking with one loud voice.

A word of caution to anti-Durbin forces, however: the man is not made of granite. We all remember his crying jag on the Senate floor when certain folks jumped him for comparing American interrogators at Gitmo to Pol Pot, Nazis, and other odious historical pariahs. So, if you're going to beat him up verbally, make sure you're using kid gloves. I mean, not everyone can control their emotions as well as...say...John Boehner.