Is Swipe Fee Reform Benefiting the Banking Industry?

This time last year, I wrote an editorial chastising the large banks for using financial reform, particularly the Durbin amendment's cap on debit card swipe fees, as a scapegoat for increasing fees to consumers. I concluded by hoping "bankers reach a similar enlightened age and stop blaming others for their own business decisions." 

I don't know if this will ever be the case, but for the time being, it is safe to say some banks have realized crying wolf is not always the best strategy. The familiar chant that the Durbin amendment meant the end of free checking, credit unions and stagnant prices for consumers (thanks to merchants pocketing swipe fee savings) was often repeated.

Here we are a year later, after the Fed has enacted the Durbin regulations halving debit interchange fees, and these predictions have failed to come true.

One of the earliest vocal opponents and claimants of "no more free checking" was TCF Bank, which even filed a federal lawsuit against the Federal Reserve to stop it from enacting regulations. Last week TCF announced its checking account "has no monthly fee; no minimum balance, monthly transaction or direct-deposit requirements and no fees for services like online bill payment." Sounds like free checking to me.

An additional benefit of the Durbin amendment is competition among community banks and credit unions. Prior to Durbin's enactment, large banks captured consumers through their debit rewards programs funded by artificially high swipe fees consumers were paying for through the increased cost of goods. However, since Durbin provided an exemption for banks with assets under $10 billion, numerous credit unions have been able to offer more expansive rewards programs and competitive checking accounts. Many of these institutions are thriving financially.

For example, Hanscom Federal Credit Union in Massachusetts has increased members by offering free checking and debit card rewards since the enactment of Durbin, recently reporting they have "seen debit card usage increase month over month"with the "month of April [2012] exceeding what we did in December, which is typically one of our busier months."Moreover, Suncoast Schools Federal Credit Union in Florida reported an 11% increase in both debit card sales and transactions in last year's fourth quarter compared with a year earlier. And Dane County Credit Union in Wisconsin is targeted to increase its 2012 interchange income.

It's hard to deny these programs benefit consumers, who are also beginning to see the benefits of the Durbin amendment at the cash register. According to the Merchants Payments Coalition, retail profit margins have fallen since the amendment rule was implemented, indicating that retailers have been passing on the savings from the lower interchange fees to consumers. USA Today reported recently gas stations across the country, including Nice N Easy and some Exxon and Arco stations, advertise lower prices for customers who pay with cash or a debit card instead of a credit card. Additionally, IKEA now offers savings vouchers on a customer's next purchase when they pay with debit.

Last month it was reported Home Depot, the nation's fourth-largest retailer has cut prices on more than 3,000 products since the Durbin amendment swipe fee reform regulations were enacted in October. Home Depot's treasurer and vice president of credit Dwaine Kimmet stated "the money saved [by] Durbin goes into the pool of savings, lowers our overall operating costs and allows us to reinvest in the business to lower prices."

As both retailers and consumers recognize the benefits resulting from swipe fee reforms, there is good reason to believe these benefits will only continue in the future. As Moody's Investors Services reports, "we believe retailers will use [the swipe fee savings] to help shield customers from the impact of [other] rising costs."

While I continue to hope for enlightenment for our nation's bankers, especially in the current economic climate, I can settle with knowing there is competition and real benefits resulting for our nation's consumers. 

David Balto is an antitrust attorney and former policy director at the Federal Trade Commission.