When comparing life today to 1934, it’s not likely you’ll find many similarities. Back then, a gallon of gas cost 10 cents, the Great Depression was in full swing, television had yet to become mainstream and the U.S. population was about one-third of what it is now.
Yet, for all of these differences, there have been some dependable things we could rely on over time, like credit unions. Eighty-three years ago, the Michigan Credit Union League (MCUL) was established, and since then, we have held fast our mission to help credit unions serve, grow and remain strong. Today, there are more than 107 million credit union members in the United States — nearly equivalent to the entire population back in 1934 — and more than half of our state’s residents belong to a credit union.
Because credit unions are not-for-profit institutions, regulations that affect our business also impact our members. Part of our responsibility at MCUL is to advocate on behalf of our members and speak out when policies are not working.
Take the Durbin Amendment, for example. Since it went into effect in 2011, this policy — snuck into the Dodd-Frank Act at the 11th hour — failed to live up to expectations and ended up harming credit unions, their members and consumers across the country.
Under the Durbin Amendment, Congress enacted price controls on the fees merchants pay to accept debit transactions (also known as interchange fees) and put in place a set of arduous, pricey routing requirements for these transactions. To ease the burden on credit unions and community banks, the amendment included a carve-out for smaller institutions, exempting them from the price control provision. However, due to the interconnected nature of the electronic payments network, this exemption failed to protect our interchange revenue from decreasing.
Credit unions have lost more than $1 billion dollars since the Durbin Amendment went into effect — and this is just from interchange revenue alone. We’ve also seen our compliance costs increase by at least 39 percent due to regulations in Dodd-Frank, including the Durbin Amendment’s routing provision.
This loss of income has real-world impact for smaller community-based financial providers. While some institutions were forced to reduce the number of free checking accounts, there also have been cuts to debit card rewards and higher fees for services.
Despite the impacts on credit union members and banking customers around the country, consumers were supposed to see lower prices at the register, as big-box stores promised to pass along their $6-$8 billion annual windfall from the Durbin Amendment on to customers. However, that hasn’t happened. Multiple studies and surveys, including those from the Richmond Federal Reserve and Phoenix Marketing International, have found most consumers are not seeing lower prices. In fact, 99 percent of retailers have raised prices or kept them the same.
Succeeding is especially tough when it comes to doing business, providing the best possible services for members at reasonable prices, in an over-regulated environment. And just as credit unions were as good an idea in 1934 as they are in 2017, here’s another reality that has not changed over time: Price controls do not work. We have seen this plenty of times before in history, with the outcome never changing. There are always unintended consequences, and consumers end up taking on the biggest losses.
While big-box stores have kept an estimated $42 billion for themselves as a bonus reward for their special interest lobbying, credit unions, their members and other community financial institutions are taking the hit. Given all of the failures of this policy, Congress must act now to repeal the Durbin Amendment in 2017.
Dave Adams is president and CEO of the Michigan Credit Union League.