Banking Insider Talks: Drop the Drama, Durbin Amendment Good for Small Banks

Big Banks Misled Public to Ensure “Unity” During Debit Debate

WASHINGTON--()--The banking industry should drop the drama around debit card reform legislation and take advantage of the benefits the Durbin Amendment has created for small banks, an industry insider and banking expert said in an oped in American Banker.

“When it comes to debit, smaller (banks) must avoid assuming their fortunes mirror the big boys. For now, the good news is that they don’t”

Lee Wetherington, a highly-regarded financial services expert who regularly keynotes industry meetings, wrote small banks exempted under Durbin are enjoying “robust” growth in debit card use and should “continue to incentivize” customers’ use, given the advantages they derived from the 2010 legislation.

“When it comes to debit, smaller (banks) must avoid assuming their fortunes mirror the big boys. For now, the good news is that they don’t,” wrote Wetherington, who has spoken at meetings sponsored by FDIC, the American Banking Association, the Independent Community Bankers of America and the Federal Reserve Bank of Atlanta. Wetherington is the Director of Strategic Insight for ProfitStars®, a division of Jack Henry & Associates®.

Wetherington cited yet another study confirming that small banks and credit unions have not suffered financially from limiting debit card swipe fees, the money merchants pay banks every time a customer pays with a debit card. Studies conducted by the Federal Reserve, the U.S. Government Accountability Office and the Federal Trade Commission also found no financial impact on small banks and credit unions.

He wrote:

“Oliver Wyman's 2012 Debit Issuer Study, commissioned by Pulse, has reported that debit card growth remains robust. The average consumer debit cardholder spent $8,326 on a debit card in 2011, up from $7,781 in 2010. Active debit users averaged 18.3 debit purchases per month, up from 16.3 the year prior. For 2012, exempt debit issuers (under $10 billion in assets) are expected to see 14% growth in PIN debit transactions, 13% for signature.”

Interestingly, Wetherington also offered a peek into the lobbying strategy behind failed efforts to kill the Durbin Amendment. After giving a speech at an industry meeting where he openly disagreed with an unnamed national banking association chairman about the impact of Durbin, Wetherington wrote the chairman “confronted me … and told me in no uncertain terms that my speech threatened to divide the banks at a time when unity was essential.”

The big banks and their lobbying groups continue to circulate inaccurate and misleading information to consumers about the impact on smaller banks as a way to kill further reforms on credit card swipe fees, which have more than tripled since 2004 and generate more than $50 billion in annual revenue for banks.

The Merchants Payments Coalition, which represents merchants concerned about rising swipe fees, has been critical of the statements and continues to keep Members of Congress informed about the banks’ misleading lobbying campaign See here and here.

Rising faster than health care costs, swipe fees are the second highest expense for merchants and are calculated into consumer prices. That equates into a $462 annual “tax” on every U.S. household levied by a credit card industry that operates in a non-competitive environment without any transparency. Visa and MasterCard control 80% of the credit card market and set the fees in secret. Unexplainably, swipe fees on credit cards are higher in the United States than anywhere else in the industrialized world – including a full eight times higher in the U.S. than in Europe.

Read more about debit and credit reform here: The Facts About Debit Reform and The Facts About Credit Card Swipe Fees.

The Merchants Payments Coalition - is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition’s member associations collectively represent about 2.7 million stores with approximately 50 million employees.