By Brad Douglas, President/CEO of Heartland Credit Union Association
Sometimes well-intentioned laws unintentionally hurt those who can least afford to take a hit. At this time of change for those in the middle class, we must focus on making a positive impact on people’s financial futures. Credit unions are here to help, but common sense changes are needed to end regulatory burden that negatively impacts hard-working American families, each and every day.
Credit unions are focused on improving the financial lives of the people and the communities we serve in Missouri. As not-for-profit entities, we return profits back to our members in the form of enhanced services like lower loan rates, low-cost services, and cash dividends. We are an integral part of our communities, providing services that help households and businesses save, grow, and reach their goals. Anything that affects earnings has a direct impact on our members and our communities at large.
Here in Missouri and across the country, credit unions are working together to raise awareness and end the negative effects of the Durbin Amendment, a last-minute addition to the Dodd-Frank Act. The amendment passed through Congress without analysis on the potential impacts of the law, despite warnings there could be unintended consequences that would hurt consumers. In the six years since the Durbin amendment went into effect, we’ve seen it do just that – negatively affect consumers and the financial institutions in our communities that serve them.
So exactly what did the Durbin Amendment do and why is it a worry for consumers? First, it enacted onerous routing requirements that saddled financial institutions large and small with additional costs and placed price controls on interchange fees on debit cards (what merchants pay to authorize debit transactions). In turn, merchants indicated they would share the reduction in their debit card interchange rates with American consumers, passing the savings on to them.
That didn’t happen.
Although big-box stores promised to pass along savings to their customers in the form of lower prices, studies show that 99 percent of stores have either kept prices the same or raised them since the Durbin Amendment went into effect. This has led to an estimated $42 billion windfall being pocketed by retailers, and not going into customers’ pockets as promised.
On top of that, financial institutions dealing with interchange fee limits have faced hard choices to offset costs. As a result, many consumers have seen higher fees or the elimination of debit card rewards as a direct result of this amendment.
Small financial institutions like credit unions were supposed to be exempt from the price controls part of the law. However, Federal Reserve data shows it impacts credit unions anyway. For credit unions, the Durbin Amendment has led to a $1.1 billion drop in funds available to provide needed loans, services and better rates to consumers.
Once again, it is hard-working Americans who are affected.
Regulations should not harm consumers so that large retailers can pocket billions of dollars each year. This is misguided policy that limits the ability of community financial institutions to focus on economic growth.
With a new year underway, now is the time for Congress to end the failed Durbin Amendment once and for all. It’s a common sense solution to stopping the growing regulatory burden that hurts consumers instead of helping them. Credit unions will stand with members of Congress to help make this a reality.