The P.A.

A weekly address from Patrick Adams,
President of St. Louis Community Credit Union

Debit Card Regulations and the “Poor Tax”

On June 5th, 2017, posted in: Industry, Uncategorized by

hand inserting debit cardYears ago, I ended up in a debate that progressed to a heated discussion, then to a war of words to a good old-fashioned “throw-down.” This other guy and I were not going to find a common bond. It happens that mediation sometimes can’t be reached. That was the case here, but to our credit, never did we call names. It was civil but heated.

This was six-plus years ago, and my mind is a little foggy on the details (as a sidebar, my mind is a little foggy on yesterday’s details). What is without blurred recall is my recollection that my foe chose the side of supporting the Durbin Amendment to the Dodd-Frank Act. Remember, the Durbin Amendment was an 11th-hour addition to the proposed regulation in order to institute a price control on how much big financial institutions could charge merchants to process debit card payments. The idea was that ultimately the merchants would pass the savings on to the consumer. That was 2011.

This is now. I was right. The amendment was far from beneficial for consumers and. quite frankly (in my opinion), was thinly disguised as a rouse to put more money in the pockets of merchants. The cuts to the interchange that large banks and credit unions would forfeit back to the merchants were to go towards consumer price decreases. What do you think happened? Big box retailers managed to pocket more than $40 billion (with a “b”) since the inception of the Durbin disaster. The consumer? Not so much.

The Richmond Federal Reserve in a 2014 study points out that only 1% of merchants reported that they had reduced their prices. Conversely, 20% raised them.

Senator Durbin’s theory also didn’t take into account that banks would have to recoup the income stream the amendment served to reallocate to merchants. Since the enactment of this mess, free checking offers across the financial services world have become harder to find, maintenance fees have doubled, new fees exist, and minimum balances on free checking have increased six-fold. Add to the formula that many debit card rewards programs have either been seriously weakened or all but disappeared.

Care to take a guess at the impact of the aforementioned actions taken in accordance with the amendment’s enactment? Lower-income families are scraping to make ends meet. They’ve either chosen to pay more fees, or they have been driven back to fringe banking elements, i.e., payday lenders, check cashers, pawnbrokers, etc. The “poor tax” is alive and well.

SLCCU is standing in the gap to help people victimized by the unintended consequences of poor legislation. Our minimum balance on free checking is zero. Our fees have not been raised in years. Even our fee for courtesy pay is $18 — half the national average of $36.

There is no debating the prognosis of the Durbin debacle. Merchants are the winners, and I won the debate.

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