Payment industry pundits and politically motivated legislators should look at the complexities found in Regulation II. Furthermore, they should look at it before they start pushing the Durbin-Marshall Credit Reform Act. You can read more about Regulation II at this recently published Mercator Viewpoint, titled “Debit Regulation II Clarification.”
The Electronic Payments coalition recently posted a letter from the American Bankers Association and every state banking association. It discussed the flaws in the upcoming attempt to impose credit card price controls. Durbin 1.0 brought redundant processing requirements to debit cards. Some of the stress points in Durbin 1.0 will likely bleed over to credit cards if the legislation is successful.
Regulation II will impact more than just large banks.
ABA Letter to Congress on Durbin 2 and Regulation II
According to the ABA letter to Congress:
- This legislation doubles down on the harm already caused by the Durbin Amendment. A recent GAO report found that the Durbin Amendment was “among the top five laws and regulations most cited…as having significantly affected the cost and availability of basic banking services.”
- It also came with broken promises, specifically from merchants that stated this regulation would result in savings for consumers. Not surprisingly, according to the Federal Reserve Bank of Richmond, after the Durbin Amendment was implemented, 98.8% of merchants failed to pass-through savings realized from debit regulation to consumers, and over 20% increased prices.
There Is a Place for Every Consumer in Payments and FIs of Any Size
As the ABA letter indicates, “Our credit card processing system is the most efficient in the world. It moves millions of dollars a second with 99.999% reliability and remains hardened against security intrusions and data theft. It provides protections like zero-dollar fraud liability for consumers and guaranteed retail payments.”
They take care of implementing the complicated and expensive 24/7, 365 infrastructure. And credit card interchange largely finances it. Over 5,000 credit card issuers are marketing directly to consumers, demonstrating plenty of competition, as confirmed by metrics used by the FTC and DOJ and a recent U.S. Supreme Court decision where no justice found evidence of an anti-competitive market structure.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group.