Merchants Payments Coalition Refutes Faulty Swipe Fee Study

Researchers at Harvard’s Kennedy School suggested that debit reform led to increased bank fees for customers.

April 20, 2016

WASHINGTON – The recent paper “Out of Reach: Regressive Trends in Credit Card Access” by two researchers at Harvard’s Kennedy School uses bad data and faulty logic to reach the wrong conclusion. “The research in this paper would not only get students a failing grade at Harvard, but in their second-grade social studies class,” said Lyle Beckwith, senior vice president of government relations at NACS, in a press release. NACS is a founding member of the Merchants Payments Coalition, a group of retailers fighting for a competitive and transparent market in the fees that banks charge retailers to process card transactions.

“The authors are trying to play the American public for chumps, by blaming the rise in checking fees brought about by the financial crisis on debit swipe-fee reform that didn’t start until 2011,” Beckwith said.

Reforming the market for debit-card fees has been proved to save consumers billions of dollars and boosted the economy and jobs to the tune of nearly $6 billion per year in consumer savings and 37,000 jobs. This has been done simply by limiting Visa and MasterCard’s price-fixing of debit-card swipe fees.

According to experts such as Georgetown University law professor Adam J. Levitin, the claim put forward in this paper that debit reform raised bank fees on consumers is just plain wrong. It is based on faulty statistics the banks and their advocates cherry-picked to make their argument.

Using the American Bankers Association’s own figures, Levitin has shown free checking actually increased after the debit reform brought by the Durbin Amendment to the Dodd-Frank financial reform law, from 53% of bank customers to 61%.

The paper uses data from a year that has no relevance to the debit reform being analyzed: the rate of free checking in 2009, which was two years before debit swipe fee reform took effect. It ignores what happened in 2009 through 2011, during which banks brought about a nationwide financial crisis and dramatically pulled back on free checking due to those market conditions. Basing their paper on those figures is nothing short of intellectually dishonest.

Even after the modest reform for the Durbin Amendment, banks still grab a 500% profit margin on processing debit-card transactions. So there must be another explanation for why fewer poor people have free checking accounts.

The real explanation isn’t hard to find. Banks have been cutting less affluent, unprofitable customers for years, with the approval of stock analysts. Blaming debit reform would seem to be cover for something banks have been doing for a long time and will continue to do.