Indraneel Chakraborty, a Professor of Finance at the University of Miami, said that the Durbin Amendment to Dodd-Frank significantly increased debit card processing costs for community banks and credit unions. This statement was made in a research paper.
“Community banks and credit unions saw their debit card processing costs increase precipitously following passage of the Durbin Amendment to Dodd-Frank in 2010, which capped interchange fees on debit cards,” said Chakraborty. “It led to a reduction in access to credit for millions of Americans and an increase in the consolidation of community banks.”
According to Checkout.com, the Durbin Amendment to the Dodd-Frank Act of 2010 capped interchange fees on debit card transactions with the intention of lowering costs for merchants. However, this amendment led to increased debit card processing costs for community banks and credit unions, resulting in reduced credit availability and consolidation among smaller institutions. The Credit Card Competition Act of 2023 seeks to address similar fee-related challenges in the credit card market, raising concerns about repeating the unintended consequences of the Durbin Amendment.
The Electronic Payments Coalition reported that the Credit Card Competition Act of 2022 failed due to strong opposition from small financial institutions and credit unions. These groups argued it would reduce revenue used to fund fraud protection and consumer rewards. The coalition also noted that the legislation would have led to fewer choices and higher consumer costs while disrupting existing payment infrastructure.
According to the New Hampshire Business Review, the Credit Card Competition Act of 2023 could negatively impact New Hampshire’s small businesses and credit unions by forcing them to adopt costly new payment processing systems. Critics argue that these mandated changes could reduce revenue streams used for fraud protection and customer rewards, ultimately increasing costs for consumers. The legislation may also challenge the viability of smaller financial institutions in the state.
Chakraborty is a Professor of Finance at the Miami Herbert Business School, University of Miami. His research focuses on financial intermediation, banking, and the economic impact of financial regulations. He has authored numerous papers on the effects of policy changes on financial institutions.
