DEBIT REFORM

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DEBIT  REFORM:  REMINDERS  OF  THE  FACTS   Debit  reform  increases  competition:     • • • • • •

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Prior  to  debit  reform,  the  card  networks  fixed  all  of  the  fees  that  issuers  charge  merchants   without  any  limitation  on  that  price-­‐fixing.       This  price-­‐fixing  by  Visa  and  MasterCard  resulted  in  highly  inefficient  and  unreasonable  fees  as   networks  raised  prices  in  an  effort  to  win  bank  business.     Debit  reform  limits  that  price-­‐fixing  to  a  reasonable  level  for  the  largest  of  the  large  banks  –   those  with  more  than  $10  billion  in  assets.   Debit  reform  does  not  limit  pricing  for  any  bank  that  wants  to  set  its  own  swipe  fees  rather  than   follow  the  Visa/MC  fixed  rates.   Debit  reform  thereby  created  incentives  for  banks  to  set  their  own  fees  and  compete.     Before  reform,  Visa  and  MC  blocked  competition  in  the  largest  banks  by  paying  them  to  sign   exclusivity  deals  where  they  would  be  the  only  networks  enabled  on  any  debit  cards  issued  by   the  banks.  J.P.  Morgan  analysts  estimated  that  Visa  and  MasterCard  had  exclusive  deals  with  40   to  50%  of  the  entire  debit  card  market,  and  79%  of  Visa’s  volume  from  just  it’s  top  10  issuers   was  part  of  an  exclusive  arrangement.   The  result:  The  once  robust  domestic  debit  market  shrunk  from  over  150  debit  networks  to  20   between  the  1970’s  and  2000’s  despite  more  competitive  pricing  and  lower  fraud  rates.   Reform  ended  these  market-­‐killing  exclusivity  practices  so  customers  of  network  services  could   have  a  competitive  choice.  

Free  checking  is  up,  not  down,  since  debit  reform:   • • •

The  American  Bankers  Association  surveys  checking  account  practices  every  year.   In  2010,  when  debit  reform  passed,  the  ABA  reported  that  53  percent  of  consumers  had  free   checking.   Last  year,  the  ABA  reported  that  61  percent  of  consumers  had  free  checking.  

Consumers  win  with  debit  reform:   • •

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Economic  analysis  of  debit  reform  savings  in  the  United  States  found  $5.7  billion  in  consumer   savings  supporting  37,000  jobs  in  the  first  year  of  debit  reform  alone.   Moody’s  released  a  report  in  2012  bolstering  those  findings  and  saying:     o “As  merchant  acquirers  pass  on  debit  fee  savings  to  retailers,  we  believe  retailers  will   use  them  to  help  shield  customers  from  the  impact  of  these  other  rising  costs.”   o “While  on  the  surface  it  would  be  easy  to  presume  that  retailers  would  benefit  from  a   reduced  debit  interchange  fee,  we  do  not  expect  retailers  to  see  a  material   improvement  in  their  earnings  due  to  the  Durbin  Amendment.”   USA  Today  and  the  American  Banker  had  stories  supporting  those  findings  in  2012.  

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And,  in  January,  USA  Today  (“2016  Gas  Prices:  Summer  Uptick  Won’t  Last,”  USA  Today,  Jan.  6,   2016)  reported  on  the  expected  fourth  consecutive  year  of  lower  gasoline  prices  in  the  United   States.  Banks  never  mention  that  when  pretending  merchants  don’t  compete  on  price.  

Small  banks  helped,  not  hurt,  by  debit  reform:   • • • • •

The  Philadelphia  Federal  Reserve  released  a  study  at  the  end  of  February  on  the  impact  of  debit   reform  on  small  financial  institutions.   Debit  reform  exempts  98.6  percent  of  all  financial  institutions  and  only  applies  its  fee  provisions   to  those  with  more  than  $10  billion  in  assets.   The  Philadelphia  Fed  study  found  that  after  reform,  “the  volume  of  transactions  conducted  with   cards  issued  by  exempt  banks  grew  faster  than  it  did  for  large  banks.”   Jeremy  Foster  of  BancVue  said  debit  reform  “represents  an  opportunity  for  credit  unions  to   further  differentiate  themselves  from  the  megabanks.”     The  Credit  Union  Times  has  reported  that  debit  reform  created  “a  powerful  way  for  credit   unions  to  accumulate  market  share”  and  “what  some  say  is  a  huge  opportunity  for  credit   unions.”