The retail industry has already politely asked Congress to please not roll back financial reforms involving debit card transactions, but as lawmakers on Capitol Hill inch closer to undoing these protections, retailers are once again voicing their concerns that undoing the 2010 law will lead to higher prices and hurt small businesses.
The Retail Industry Leaders Association and the Merchants Payments Coalitionannounced Wednesday renewed opposition against legislation that aims to roll back several provisions under the Dodd-Frank Wall Street Reform and Consumer Protection Act, including the Durbin Amendment.
Dubbed the Financial Choice Act 2.0, the 593-page legislation [PDF] introduced this week and scheduled for its first discussion by the Financial Services Committee today, is a revision of the previous Financial Choice Act introduced by bank-backed Texas Rep. Jeb Hensarling last year.
According to the bill’s comprehensive summary [PDF], the Act would repeal the Durbin Amendment [PDF], removing requirements that guided how much credit card networks could charge retailers for processing debit card transactions.
The summary, on page 103, claims that by repealing the Durbin Amendment, Congress would bring an “end to a “misguided government experiment in price-fixing that has done consumers more harm than good.”
The legislation claims that the Durbin Amendment resulted in the elimination of free checking accounts at banks and pushed consumers out of the mainstream banking system, while providing no discernible benefits to retail consumers.
These are claims the retail industry disagrees with.
What’s The Durbin Amendment?
For those unfamiliar, the Durbin Amendment was added to the 2010 Dodd-Frank Act and was intended to lower costs to retailers and increase competition in the market — dominated by Visa and MasterCard — for processing debit card transactions.
Each time a shopper uses their debit card at a checkout, the merchant pays a fee to the bank that issued that card.
Prior to the reform, if merchants wanted to accept debit or credit cards issued by the card networks — Visa and MasterCard — they were required to pay the fee, which is set by the networks and non-negotiable.
Under the amendment, banks with over $10 billion in assets would have to charge debit card interchange fees that are “reasonable and proportional to the actual cost” of processing the transaction. After much wrangling, these swipe fees were ultimately capped at $.21, about half of the pre-reform average.
Additionally, the measure included provisions which allow retailers to refuse to use credit cards for small purchases and offer incentives for using cash or another type of card.
Industry Response To Possible Repeal
The retail industry claims that because of the Amendment merchants have been able to drop their prices, as they weren’t being charged the additional fees.
In fact, the Merchant Payments Coalition claims that since the Amendment was approved in 2010 it has saved consumers $30 billion.
The Coalition, which represents retailers, supermarkets, restaurants, drug stores, convenience stores, gas stations, online merchants and other businesses, announcedWednesday that it would meet with more than 100 members of Congress in an attempt to save the debit-card reforms.
The group plans to discuss the ways in which swipe fee reform has “bolstered Main Street businesses” and allowed smaller competitors to handle debit transactions.
“This competition has been good for the economy and helped people save money,” the group claims.
Another industry group RILA — which counts a number of major retailers, such as Apple, Best Buy, Gap, Target, Walmart, and others, as members — urged legislators on Wednesday to remove the swipe fee provisions from the Act, declaring Wednesday that the repeal of such reforms is a “poison pill” for retailers.
The group claims that the CHOICE Act would give the “largest banks and card networks a green light to charge billions in higher fees” from every business that accepts debit cards.
“Repealing swipe fee reform is a billion-dollar giveaway to banks that are generating record profits and passing out record bonuses; it’s a poison pill for any bipartisan effort to enact meaningful financial reform,” Austen Jensen, Vice President of Government Affairs and Financial Services for RILA, said in a statement.
If retailers are forced to pay higher fees, RILA believes those costs would be passed on to consumers.
Gutting Other Reforms/Protections
In addition to removing swipe fee reform, the Financial CHOICE Act 2.0 also aims to roll back several provisions under the Dodd-Frank Act and limit the CFBP’s ability to oversee the entire financial industry.
Among the bill’s provisions are sections that would require the CFPB to get congressional approval before taking enforcement action against financial institutions, restrict the Bureau’s ability to write rules regulating financial companies, and revoke the agency’s authority to restrict arbitration.
While each of these provisions aim to deregulate financial institutions, perhaps the most concerning is a measure that would essentially move to prevent the CFPB from having any oversight over the payday lending industry.
Section 733 of the Act calls for the “removal of authority to regulate small-dollar credit.”
This, of course, would prevent the agency from finalizing its nearly year-old proposed payday lending reforms aimed at reducing the likelihood of borrowers needing to take out new loans to cover old ones.
The CFPB offers four protections to end debt traps: a test that companies must perform before extending credit; restrictions on rollovers; a payoff option for some products; and offering less-risky lending options.
The measure would also prevent the agency from taking enforcement action against payday, auto title, or similar lenders.
Additionally, the legislation would overhaul the annual stress tests the Federal Reserve uses to determine if banks have enough capital to sustain a financial crisis.
Under the legislation, banks would be subject to the stress tests every other year and banks that agree to dramatically increase their capital would not have to undergo the stress test at all.
The “Wrong Choice” Act
Ever since rumors began swirling that Rep. Hensarling — who personally accepted at least $7.38 million from companies regulated by the CFPB, according to Allied Progress — would reintroduce the Financial CHOICE Act, consumer advocates have spoken out about the dangers of repealing protections and regulations of the financial industry.
In fact, today our colleagues at Consumers Union urged lawmakers to oppose the Act that it believes will severely limit the CFPB’s ability to protect consumers and ensure they are treated fairly by banks and other financial firms.
“The CHOICE Act is the wrong choice for lawmakers interested in protecting their constituents from financial scams and rip-offs,” Pamela Banks, senior policy counsel for Consumers Union, said in a statement. “This bill would render the CFPB virtually powerless and leave families vulnerable to unfair and abusive financial practices.”
Since the CFPB opened its doors in 2011, it has won almost $12 billion in refunds and relief for an estimated 29 million Americans who’ve been defrauded by financial companies, CU notes.
While the bill would strip the CFPB of its regulatory ability, it would completely revamp the Bureau’s structure.
For instance, the Act would allow the Bureau’s director, Richard Cordray, to be fired at will, and would make the agency’s budget subject to annual congressional appropriations process, “opening it up to further attack by financial industry lobbyists and other opponents determined to undermine the agency and shrink its budget.”
Other consumer advocacy groups have echoed CU’s sentiments, stating that the Financial Choice Act 2.0 is worse than the original legislation.
The Center For Responsible Lending said in a statement that it believes the bill would once again expose American families to risky financial practices that contributed to the Great Recession of 2008.
“This extreme legislation would put the foxes back in charge of guarding the hen house by putting big banks and predatory lenders back in charge of our economy,” Yana Miles, senior legislative counsel for CRL, said in a statement.
Miles called on the Financial Services Committee to focus on protecting consumers rather than making it easier for “credit card companies, for-profit colleges, and debt collectors to swindle American families.”
Similarly, Americans for Financial Reform sent a letter to members of Congress Wednesday expressing option to the Act.
“This legislation would be better dubbed ‘Wall Street’s CHOICE Act,’ as it would have a devastating effect on the ability of regulators to protect consumers and investors from Wall Street exploitation and the economy from financial risks created by too-big-to-fail megabanks,” the group said.
If passed, the “radical piece of legislation” would expose consumers, investors, and the public to “greatly heightened risk of abuse in their regular dealings with the financial system, and our economy as a whole to a far greater risk of instability and crisis.”
Advocates aren’t alone in their distaste for the legislation. New York Rep. Carolyn Maloney, a ranking member on the House Financial Services subcommittee on Capital Markets, Securities, and Investment expressed her displeasure with the bill.
“The Republican Financial CHOICE Act is a recipe for disaster that lays the groundwork for another financial crisis by repealing the Dodd-Frank Wall Street Reform and Consumer Protection Act,“ she said in a statement.
Maloney added that she was hopeful the new CHOICE Act would have the same fate as Henasling’s previous version and “end up nowhere near the President’s desk.”