President Trump may be gunning to reform the Dodd-Frank Act, in particular one of the most contentious policies of the act: the Durbin Amendment.
The Durbin Amendment—passed as a stipulation of the Dodd-Frank Act—allows the government to set price caps on fees for card transactions. Before 2009, interchange rates were set by banks and merchants involved in the transaction process.
The passing of the Durbin Amendment resulted in the stagnation of free services offered to consumers: before 2009, 76% of banks offered free checking accounts. After Dodd-Frank and Durbin, that number dropped to 45% in 2011, 39% in 2012, and 37% in 2015. This decline has forced some Americans to avoid banking entirely.
The goal of The Durbin Amendment was to pass savings to consumers by giving merchants fee breaks on interchange rates. Instead, 77% of merchants’ prices have stayed the same, while 22% have increased.
What would happen if President Trump and congress overhauled Dodd-Frank and repealed Durbin in its entirety?
A return to the pre-2009 era of interchange rates would result in retailers negotiating the cost of card transactions. This could lead to larger businesses paying less per transaction, while smaller businesses could take a more significant hit.
There is something to be said for retailers’ motivations: the largest proponents of keeping Durbin in the Dodd-Frank Act are massive outlets like Walmart, Walgreen’s, etc.
For the individual consumer, this could mean a change in the price of goods, depending on where they shop. It could also mean an increase in the number of free services that many banking institutions provide to incentivize the clientele that they’ve lost since 2009 to return, now that the burden of card processing fees are no longer shifted onto the consumer.
Either way, these changes are not likely to take place any time soon: Height Securities analyst Edwin Groshans theorizes that these regulation changes may not take place for at least another year. Ultimately, the ability to amend or repeal Dodd-Frank lies with the regulators in charge of these sanctions, not just with the President or congress, and any changes made will be hard-fought, given that the act was initially considered to prevent the irresponsible banking practices that lead to the 2008 market crash.
