Bank, the Black Community and the Durbin Amendment, by Taikein M. Cooper | Richmond Free Press
Access to banking and all the opportunities it offers is an absolute necessity for historically disenfranchised and marginalized communities. This is how we pay for our daily necessities, take out loans to start businesses or buy homes, and attempt to build generational wealth to make the American Dream a reality.
Unfortunately, access to banking services has steadily declined over the past decade. According to data from the Federal Deposit Insurance Corporation, more than 4% of Virginia households overall are unbanked, meaning no household member has a bank account.
When you look at minority communities, the numbers are much worse.
The United Way of Greater Richmond and Petersburg found that about 15% of black and brown households are unbanked in this region. These numbers are compounded when we think of the number of merchants who rarely accepted cash during the pandemic or had little change to refund to customers.
Representatives in Congress should focus on policies that will help solve this problem of unbanked households. Yet some special interest groups are pressuring federal leaders to pass policies that will make it even harder for the communities that need help the most in this area. Major retailers are now pushing to get these elected officials to extend the 14-year-old Durbin Amendment to credit cards, an amendment that imposed regulations on the interchange fees that merchants pay to banks to process credit cards. debit.
In short, every time you swipe a debit card, the place where you swipe pays a small fee to the bank. In some places, companies pass these charges on to the customer with a “convenience fee.” Historically, this fee was a percentage of the purchase, but the Durbin Amendment capped this fee. The idea was that by capping fees on debit cards, business retailers like Walmart, Amazon, Kroger and Costco would lower prices for consumers.
However, the Federal Reserve Bank of Richmond found that 90% of merchants did not lower prices and retailers gained an additional $90 billion.
Worse still is the impact this policy has had on access to banking services. Banks depend on revenue from interchange fees to keep their fees and minimum account balances low, but after seeing revenue drop dramatically, they have taken drastic action.
A study by the Government Accountability Office found that after the Durbin Amendment came into effect, covered banks were around 35% less likely to offer free current accounts and increased the average minimum balance by 50% to avoid monthly charges on these accounts.
As banking services became more expensive, communities that were already struggling were hardest hit. George Mason University reported in 2014 that these regulations were increasing our country’s unbanked population by one million people, disproportionately in minority and low-income areas.
Looking at the historical data on the Durbin Amendment, it seems obvious that our members of Congress should reject any extension of these regulations to credit. In 2021, economists estimated that extending this amendment to credit cards would transfer roughly $40 billion to $50 billion annually from consumers to big box stores, which we already know will not be used to drive down the prices.
As before, banks will lose billions in interchange revenue and increase credit card fees as we have seen them do before with debit cards. Since the credit market is much larger than the debit market, banks will need to take even more drastic measures, such as cutting rewards programs, raising interest rates and raising credit standards.
Banks often absorb billions of dollars a year from fraudulent transactions and unpaid credit card bills. If we cap credit card interchange fees and cut billions of dollars in banking revenue, banks will simply stop assuming these responsibilities.
Virginians deserve access to accessible and affordable banking and credit. Extending Durbin Amendment regulations to credit cards would hurt marginalized consumers and be the wrong choice for our communities.
The author is a Richmond-based education and equity advocate.