Tag: Durbin Amendment

Why Does The Independent Community Bankers of America (ICBA) Oppose Debit Card Reform?

By Simon Johnson

It’s not hard to understand why large banks oppose any attempt to reform the financial arrangements currently surrounding credit cards and debit cards – in the duopoly run through Visa and MasterCard, big banks earn fees that far exceed their costs.  This excess profit gap for debit cards would be substantially reduced by a Federal Reserve proposed regulation now on the table, which would implement the Durbin Amendment from the Dodd-Frank 2010 financial reform act.  Senator Jon Tester (D., Montana) has proposed legislation that would delay and effectively derail implementation of the Durbin Amendment; the big banks are very much in his camp.

It’s much harder to understand why Independent Community Bankers of America (ICBA), the lobby group for small banks, is also working so hard for the Tester bill – because community banks are explicitly exempted from having to lower their fees and individual executives from at least some small banks publicly support the Durbin Amendment (e.g., see Senator Durbin’s letter to the ICBA last year). 

The most plausible explanation is that ICBA is also one of the country’s largest issuers of credit cards and debit cards – so the representative of small banks actually has, in this regard, the incentives of a big bank.  This is a major conflict of interest that is undermining the interests of community bankers and distorting the political process.  The ICBA needs to declare this conflict in a transparent manner and step back from its involvement in the Durbin-Tester debate.   (UPDATE: The ICBA says that it derives no revenue from debit interchange, despite the fact that the leading industry sources list it as #20 for “Signature Debit Card Interchange” and #13 for “PIN Debit Card Interchange”; for a full explanation, see the note from Cam Fine that appears with the NYT.com version of this column.)  It also needs to publish the full details of a “survey” that it uses to claim that most community bankers are against the Durbin Amendment.

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