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Briefing Room: The Durbin Amendment And The Regulation Of The Debit Card Industry

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On November 6, 2013, PYMNTS.com presented a conference in Washington, D.C. “The Durbin Amendment and the Regulation of the Debit Card Industry” where thought leaders from all sides of this debate came together.

The debit card industry is in turmoil over regulations again. The Federal Reserve Board’s regulation of debit card interchange fees and routing went into effect on October 1, 2011 after a roughly year–long rule making process. But a few weeks ago a U.S. district court judge ruled that the Fed hade made serious errors—basically ignoring what Congress intended, favoring banks, and harming merchants. Depending on what happens on appeal interchange fee rates could plummet, or not, and banks could be forced to offer more routing alternatives on debit cards, or not. A wild card is whether Congress will step in or leave it to the courts to sort it out.

Our speaker faculty addressed these complex issues including, National Retail Federation General Counsel, Mallory Duncan, who led the successful effort to persuade the district court to overturn the Fed’s rules; Dr. David S. Evans who has written extensively on interchange fee regulation and authored several submissions to the Federal Reserve Board during its rule making; lawyer Douglas Kantor who has represented the merchants in their assault on interchange fees; and NYU Professor of Law, Richard Epstein, one of the country’s top legal scholars who worked on a constitutional challenge to the Durbin Amendment.

Click here for more on the The Durbin Amendment Conference Program, speakers, and the program agenda.

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The Impact of the U.S. Debit Card Interchange Fee Caps on Consumer Welfare: An Event Study Analysis

by David S. Evans (Univ. Chicago, UCL, GlobalEcon), Howard H. Chang (GlobalEcon), Steven Joyce (GlobalEcon), Oct. 2013

The cost to merchants of taking payment on debit cards declined by more than $7 billion annually as a result of the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, while the effective cost to issuers of providing debit card services to consumers increased by a corresponding amount. This paper reports an event-study analysis of stock prices to determine the impact on consumers of the Durbin Amendment.

Economic Analysis of Claims in Support of the ‘Durbin Amendment’ to Regulate Debit Card Interchange Fees

by David S. Evans (University of Chicago Law School; University College London; Global Economics Group), Howard H. Chang (Global Economics Group, LLC), Margaret Morgan Weichert (Market Platform Dynamics), May 2011

Section 1075 of the 2010 Dodd-Frank Act requires the Federal Reserve Board to regulate the debit card industry including the interchange fee banks and credit unions receive from merchants. This paper reviews the arguments in support of this regulation put forward by Senator Durbin, who proposed the amendment that led to Section 1075, large retailers, and merchant trade associations.

Payment Card Regulation and the Use of Economic Analysis in Antitrust

by Jean Tirole (DEI, Toulouse School of Economics), Mar. 2011

This “Interchange Fee” has been the object of much controversy and the theoretical underpinnings of its regulation are still debated. The primary object of this note is to clarify the considerations that should be brought to bear on the determination of regulated fees. It argues that some broadly contemplated regulatory methodologies bear only limited resemblance with economically sound precepts. Finally, it derives some implications of these regulations for the likely evolution of the payment card industry.

Durbin Amendment Resulted in Massive Consumer Cost

by David S. Evans (Univ. Chicago, UCL, GlobalEcon), Oct. 2013

When regulators slash interchange fees—as they’ve done in Australia, Spain, and of course the United States—do consumers win or lose?

The Durbin Routing Mess

by Gloria Colgan (Market Platform Dynamics), Aug. 2013

The ruling by Judge Leon that told the Federal Reserve Board it had erred too far in favor of the banks has gotten a lot of attention over the past two weeks. The implications for any institution that is involved in handling or accepting debit cards are far-reaching and put two issues back on the table from Durbin – pricing and routing.

Cross-Routing: PIN and Signature Debit Interchangeability under the Durbin Amendment

by Adam J. Levitin (Georgetown University Law Center), Nov. 2010

This article argues that the Durbin Interchange Amendment’s “multi-homing” provision, which prohibits exclusive routing arrangements on debit card transactions, should be understood to permit “cross-routing”— the routing of signature debit transactions over PIN debit networks and vice-versa to encourage competition for best price execution on payment card authorization, clearance and settlement.

The Economic Principles for Establishing Reasonable Regulation of Debit-Card Interchange Fees that Could Improve Consumer Welfare

by David S. Evans (Univ. of Chicago, UCL, GlobalEcon), Robert Litan (Kaufmann Foundation), Richard Schmalensee  (MIT), Feb. 2011

This paper uses the standard economic framework for designing government regulations to evaluate the Federal Reserve Board’s proposed cost-based price caps for debit card interchange fees.

The Costs and Benefits of Half a Loaf: The Economic Effects of Recent Regulation of Debit Card Interchange Fees

by Robert Shapiro (Glaser Weil Fink Jacobs Howard Avchen & Shapiro), Oct. 2013

“The charges applied by debit card networks and the banks issuing debit cards have become matters of broad interest and import, as the numbers of Americans using debit cards and the value of debit card transactions have both risen sharply and steadily…”

Fed Brief: On appeal from the United States District Court for the District of Columbia Judge Richard J. Leon

Oct. 2013

Brief for defendant-appellant Board of Governors of the Federal Reserve System, Civil No. 11-02075 (RJL).

EMV: Solving for the Wrong Problem

by Gloria Colgan (Market Platform Dynamics), Sept. 2013

“U.S. stakeholders in the value chain have chosen to implement their own fraud protection measures, rules, systems or additional layers of control such as PCI, instead of spending the money to voluntarily implement EMV…”

Toward Reasonable Regulation of Debit Card Interchange Fees: The Case for Modifying the Federal Reserve Board’s December 16, 2010 Proposals

by Martin Baily (Brookings Institution) and Robert E. Litan (Kauffman Foundation), Feb. 2011

This paper shows why the Federal Reserve Board’s proposed alternatives for regulating interchange fees are not “reasonable” and therefore in direct violation of the statutory mandate that these rules be “reasonable” and “proportional” to the costs incurred by debit card issuers.

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