The Durbin Amendment took effect in October and was a last-minute addition to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 approved by Congress.
Before the change, the swipe fee a merchant paid to the bank when a customer used a debit card was usually about 1 percent of the purchase price, and the average fee was 44 cents.
The cap limits the fees to no more than 26 cents per transaction, regardless of the purchase price.
The study found that the regulation would cost banks $8 billion in lost revenue. Georgia already has seen more bank failures than any other state. Since 2008, the Federal Deposit Insurance Corp. has closed at least 80 of the state’s banks, including three in Cobb County.
“As home to many community banks, Cobb could be seriously harmed if the negative effects of the Durbin Amendment continue to creep down from larger to smaller banks,” said Kelly McCutchen, president and CEO of the Georgia Public Policy Foundation.
Some community banks are partially exempted from the regulation, but McCutchen said they’re still seeing reduced revenue.
“Many smaller banks and credit unions that aren’t subject to the price controls are fearful that large retailers will drive customers toward cards issued by banks subject to the debit card caps,” he said.
Jay Gratwick is chief financial officer of Delta Community Credit Union, which has several branches in Cobb.
“Banks had counted on these interchange fees to help rationalize the costs of operating a debit-card program,” he said.
Exempt banks and credit unions can still charge the higher fees, but under provisions that just went into effect, a merchant can choose to process the transaction through a network that charges a lower fee. Retailers could also form alliances with larger banks subject to the price controls, cutting out smaller institutions.
“We worry the exemption will be eroded or eliminated over time,” Gratwick said. “If so, small institutions — those under $10 billion in assets — will be at a real disadvantage in trying to maintain debit card services.”
In the end, consumers may be the hardest hit.
“We have already begun to see that locally,” Gratwick said. “Many big banks have eliminated their free checking account products or introduced new requirements to offset some of the real decline in revenue they’ve experienced due to the amendment. They’ve had to pass part of these costs onto their customers to maintain their profitability.”
Rob Garcia, president and chief operating officer of Bank of North Georgia, agreed.
“All it has done is take billions of dollars of revenue away from banks — an already fragile industry — and passed it directly to retailers with no benefit reaching to the consumers it was supposed to help,” he said.
The biggest question is, how much more can a fragile economy take?
“Banks can only shift so much of the costs to consumers,” said John Berlau, author of the study and a senior fellow for finance and access to capital in the Center for Economic Freedom at the Competitive Enterprise Institute in Washington, D.C.
“They already are having to eat some of the costs themselves. Some small community banks in Georgia also are starting to feel the pinch due to the indirect effects of price caps and other of the amendment’s provisions. This means less credit available to businesses, including the retailers that lobbied for the amendment.”
Michael J. Pallerino has reported on business news for magazines and newspapers in the Atlanta area for more than 20 years.