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Current & Recent Research at Penn Law

Author: Sarin, Natasha
Citation: The Impact of the Durbin Amendment on Banks, Merchants, and Consumers (with Vladimir Mukharlyamov).
Date Published: Forthcoming
Date Posted: 08/31/2018
Subjects: Law and Business
Law and Economics
Keywords: Banking and Finance
Consumer Protection Law
Law and Society
Every time a merchant accepts a credit or debit card as a form of payment, she pays a fee to her customer's bank for processing that transaction. Historically, these fees ranged from 1-3% of the transaction amount. The Durbin Amendment to the Dodd-Frank Act capped interchange fees for debit purchases at $0.21 per transaction. This decreased interchange revenue for covered institutions (banks with more than $10B in assets) by 25%. We estimate that the availability of free checking for bank customers decreased from 60% to 20% as a result of Durbin. Using proprietary interchange data from a large card issuer combined with price data from the Nielsen Retail Scanner, we fail to find any impact of Durbin on merchant prices. Overall, our results are suggestive of an asymmetric response to Durbin: banks whose revenue fell because of Durbin responded by increasing consumer costs, and retailers whose revenue increased because of Durbin failed to pass through these savings.