Durbin Amendment could hurt Georgia banks’ lending ability, economic recovery

Kelly McCutchen

A recent study in the state of Georgia revealed that federal caps on debit card transaction fees will damage the state’s economic recovery and reduce the ability of the state’s financial institutions to lend to businesses.

The Durbin Amendment, a provision of the 2010 Dodd-Frank Act, caps the “swipe” or interchange fee — the amount a bank or credit union can charge a merchant to process a debit transaction.

The study, conducted by the Competitive Enterprise Institute of the Georgia Public Policy Foundation, said that Georgia would be particularly harmed by the interchange rule, as the state continues to struggle against a tumultuous housing market.

Georgia has been hit particularly hard by the recent financial crisis, with unemployment hovering around nine percent. Since the 2008 financial crisis, the Federal Deposit Insurance Corp. has shut down at least 80 of Georgia’s banks.

“Historically, commercial banks in the South have played a significant role in financing the economic development of the region,” Thomas D. Hills, a former Georgia state treasurer and CFO under Gov. Sonny Perdue, said.

Economist John Berlau, a senior fellow for finance and access to capital at the CEI and author of the study, echoed those concerns.

“Without healthy banks with money to lend, it will be much harder for local entrepreneurs to find the funding they need to grow their business,” Berlau said. “Georgia’s banks were already weakened by the recent, harsh recession. New regulations coming out of Washington, like the Durbin Amendment, are making it even harder for the banks to recover and do their part to kick-start the state’s economy.”

The study also revealed that the Durbin Amendment will cost banks approximately $8 billion in revenue as a result of the interchange fee cap, as well as $7 billion in direct compliance costs as a result of Dodd-Frank.

“And, contrary to claims of proponents of these price controls, it does not look like much of this retailer windfall has been passed on to consumers,” Berlau said, referring to claims by the retail industry that Durbin savings would be passed to consumers in the form of lower costs.

Kelly McCutchen, president of the GPPF, said that increased costs and compliance from government regulations come at a bad time.

“The Durbin Amendment has already hurt small and large banks, and it isn’t helping consumers,” McCutchen said. “It should be repealed before it does anymore harm to the businesses that rely on them for loans and lines of credit to make payroll, open new locations and hire more employees.”

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