Why Are Credit Card Companies Silent On Durbin?

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Yesterday, I shared with you the grim news of the Durbin Amendment and how it will effect everyone every time they pay for anything.

Strange Bedfellows

It has been said that politics makes for strange bedfellows.    Last year, I spent much of my time and effort supporting the CARD Act, which was strongly opposed by the banks.    The banks loved to pretend that the CARD Act was going to be bad for consumers, while I contended that they should stick to pronouncing how the CARD Act will effect them, and leave consumer advocates to represent consumers.   To do otherwise, was paternalistic and disingenous.

How Times Have Changed

Now, in light of the Durbin Amendment, I cna forsee a rare alignment of the interests between banks and consumers.    I have already pointed out how consumers will be screwed by this bill.     The bill unquestionably shifts transaction costs to consumers while destroying price transparency in everyday purchases.

I am will to risk of being paternalistic and disingenuous myself when it comes to describing the effects of the Durbin Amendment on banks, as unlike the CARD Act debate, my interests as a consumer advocate do not conflict with the banks and the credit card companies.

Banks And Credit Card Companies Are Going To Be In Big Trouble

When the day comes when I will be faced with a substantially lower price for using cash or check, I am going to have a real hard time justifying pulling my credit card out of my wallet.   It is very easy to imagine merchants raising the credit card surcharge or cash discount (they are essentially the same thing) far beyond their interchange fees and very close to my present reward value.    This will be compounded by the fact that as fewer consumers use credit cards for daily transactions, credit card companies will earn less in interchange fees.    Furthermore, the Durbin Amendment will have the otherwise reasonable effect of lowering interchange fees across the board.

I can see no other outcome to this disruption of the status quo than a massive decline in interchange (swipe) fees as consumer flock away from credit cards, especially deadbeats.     You might be thinking; “Jason is a real credit card guru, but the average card holder won’t really notice a couple percent here or there and change their behavior.”     I am afraid this is not so.    Check out the comments to this article about the Durbin Amendment in the Consumerist;

Stores won’t lower their prices, this is profit you won’t notice. Instead, they’ll charge a credit card fee, and prices will go up!

This is a consumer-unfriendly move.

I’m sure that all retailers will immediately lower their prices because of the reduction of swipe fees. …oh wait, no they won’t.”>I’m sure that all retailers will immediately lower their prices because of the reduction of swipe fees.

…oh wait, no they won’t.

I currently have 2 motivations for using my CC:

1. Easy to track expenses without the receipts.
2. Cash back. (I don’t every carry a balance)

If the cash back goes away and stores offer a cash discount due to this bill, I will stop using my CC for most purchases…

Yes there were some comments by merchants and others in favor of the Amendment, but I was stunned how many comenters opposed the amendment, especially considering the Consumerist’s take on the Amendment was inexplicably positive.
Oh The Irony
The banks complained loudly how the CARD Act would hurt consumers, when it only hurt the banks.  Now that both the banks and the credit card companies and consumers are actually in peril, the banks have been fairly quite.  What happened to your bazillion dollar lobbyists?
Hey Republicans, where is your filibuster now that we actually need it?  Is it possible that you are more in the pocket of merchants than consumers, banks, and credit card industries combined?
What the heck is going on here?

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2 Responses to “Why Are Credit Card Companies Silent On Durbin?”

  1. Credit Card Mosaic Says:

    Jason,

    There is plenty going on its just being done behind the scenes. I’m not sure if you read or watched the news as of late, but the banks and CC companies names are mud right now and no one wants to be associated with them. Screaming your head off is probably not the right thing to do at this point especially when others who have a better reputation and much more to lose then the banks (Visa and MC).

    The most shocking thing for both Visa and MC was the Durbin amendment actually got to a vote and then passed with over 60. That’s trouble. Visa and MC now have all the reason in the world (given the stomach punch each has received from the markets after the Durbin amendment passed) to get some sort of compromise in place with NACS and the NRF before the bill goes into conference. I wouldn’t be surprised if the amendment died in conference and then some reduction in interchange was announced soon afterwards.

    Follow the money at the moment, interchange is an extremely large part of transactor-based product portfolios (Amex Platinum, Chase Continental, Citi AAdvantage, etc.), but a much smaller portion of the pie when it comes to the revolving products. The banks can at increase annual fees in this reward based products (most heavy transactor products have them anyway) or devalue the rewards associated with them. The networks have no other option. Both MC and Visa’s valuations have been based on increasing their share of payments into perpetuity and that is now in immediate jeopardy.

    Interchange Drop = Fewer Rewards or More Expensive Cards = Fewer Transactors = Fewer Issuers = Fewer Transactions = Larger Drop in Valuation for the Networks.

    Given all this, I would expect the ABA to raise their usual fuss but for the most part the banks will let the networks fight this one out as they have less to lose and their public involvement make actually hurt rather then help Visa and MC’s cause to kill the Durbin Amendment.

  2. interloper Says:

    In addition to the points mentioned in the prior comment, the big banks may also have another incentive to stay quiet. According to Meredith Whitney, the lowering of interchange fees will most likely price out the smaller banks and credit unions.

    If regulators are going to step in and eliminate some of your competitors, and reduce competition in your space, why fight it? It’s win-win for you. You get more market share without being labelled as the bad guy, as it’s Congress that’s doing the dirty work. Just keep your lobbyists out of it, to keep your own nose clean.

    With the unpopularity of the financial industry right now, combined with politicians’ willingness to step in and regulate anything and everything right now, I expect to see a lot more “bad ideas” get implemented. At least, until the unexpected bad results occur.

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