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What's Up in Washington: Durbin Repeal: What's at Stake (MAG Quarterly- Volume Four, Issue Three)

Liz Garner

By Liz Garner, Vice President, Merchant Advisory Group 

September 1, 2016

When Congress returns to Washington in the fall a dangerous piece of legislation to repeal debit reforms remains on the table for consideration by the House Financial Services Committee. Get an update on legislative activity and the importance of preserving all facets of the reforms, especially routing competition provisions that are critical to helping ensure competition on EMV and mobile transactions.

This summer, House Financial Services Committee Chairman Jeb Hensarling (R-TX) introduced a legislative reform package to replace the Dodd-Frank Wall Street Reform and Consumer Protect Act, which was signed into law in 2010, and contained the Durbin amendment debit transaction reforms. Chairman Hensarling recently introduced a reform package with a full repeal of the Durbin amendment, which includes all reforms related to:

  1. Reasonable and proportional debit card fees;
  2. Competition for debit transaction routing; and
  3. Prohibitions on card network fines related to card acceptance rules for discounting and the setting of $10 or less minimums on credit cards.

More information on the Financial Choice Act discussion draft is available here. Section 335 contains the language on full debit reform repeal. Representative Randy Neugebauer (R-TX), Chairman of the Subcommittee on Financial Institutions and Consumer Credit, also introduced standalone repeal legislation (HR 5465).

The full House Financial Services Committee held a hearing on the Financial Choice Act in mid-July before Congress adjourned until after Labor Day. Debit repeal was not a focus of the hearing, but we anticipate much more activity in the House Financial Services Committee on this issue and more broadly on the Financial Choice Act when Congress comes back this fall.

If the debit reforms have been beneficial to your business, it is critical that you weigh in with your lawmakers to convey your support for keeping reforms intact. Many merchant trade associations are running grassroots outreach campaigns and we strongly encourage that you participate in those. If you don’t weigh in now, your Members of Congress may be inclined to support repeal of the debit reforms, and with a fair amount of uncertainty regarding what will make the Congressional agenda after the November election, there’s always a possibility repeal legislation could move forward.

Lastly, in mid-July, the merchant community released a letter with over 120 individual companies as signatories asking Chairman Henslaring and Representative Neugebaeur to reconsider any roll back of the debit reforms that have “provided significant relief to Main Street businesses from anti-free market practices employed by global credit and debit card brands.” The letter is available here. The merchant community is still collecting signatures on the letter so if your company is interested in signing on, please email liz.garner@merchantadvisorygroup.org no later than Tuesday, September 6th.

The Importance of Routing Competition for EMV & Mobile

One of the more lightly discussed provisions of the debit reforms ensures merchants have debit network routing choice on every transaction. The debit reforms have greatly increased competitive network options on every debit card. When a merchant swipes a card for payment, there are now different networks over which the transaction can be routed. Prior to debit reforms, Visa and MasterCard were leveraging their signature network relationships with the largest issuers to gain a competitive advantage over domestic PIN debit networks. The result is that 40 to 50% of the debit card market had exclusive network arrangements[1] and 79% of Visa’s volume from their top 10 issuers was derived from exclusive deals.[2] These exclusivity arrangements created an unfair playing field for domestic US debit card networks, increased the cost of card acceptance for merchants due to less competition on each transaction and decreased the volume of transactions that were running over more secure domestic PIN debit networks.

The debit reforms have created a tremendous amount of routing competition benefiting the majority of U.S. payment system stakeholders. The reforms are even more important today than they were six years ago as they are critical to foster a competitive landscape for emerging U.S. payments, including the growth of EMV and increasing sales for both e-commerce and mobile commerce. Instead of talking about repeal, it is crucial that policymakers and regulators ensure that this competitive routing landscape is adhered to by all stakeholders in the payments chain in order for the market to succeed. We’ve already seen evidence of anti-competitive activity in both EMV and mobile through the failure of global card brands to license biometric customer verification methods to domestic debit networks residing on the common debit AID. This could infringe on merchants right to routing choice and negatively impact consumers through higher costs and lower security due to less competition and less efficiency in the overall system. Read about the EMV debit screen debacle in Digital Transactions.

In the event debit reforms get repealed, it will only enable the dominant global networks to push their own agendas to maintain or gain market share despite the many ways in which their card acceptance rules and policies hinder innovation in commerce.


[1] “Fed Plan Raises Debit Issues Galore.” American Banker. December 2010. http://www.americanbanker.com/bulletins/debit-issues-galore-1030247-1.html?zkPrintable=true

[2] “Rewriting the Transaction Routing Rules.” Digital Transactions. January 2011. http://www.digitaltransactions.net/news/story/Rewriting-the-Transaction-Routing-Rules