THE IMPACT OF THE U.S. DEBIT-CARD INTERCHANGE FEE REGULATION ON CONSUMER WELFARE

The cost to U.S. merchants of taking payment on debit cards declined by more than $7 billion annually as a result of the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, while the effective cost to issuers of providing debit-card services to consumers increased by a corresponding amount. This article reports an event-study analysis of stock prices to determine the impact on U.S. consumers of the Durbin Amendment. Did consumers gain more from cost savings passed on by merchants, in the form of lower prices and better services, than they lost from cost increases passed on by banks, in the form of higher prices or less service? We find that consumers lost more on the bank side than they gained on the merchant side. Our estimate is that, based on the expectations of investors, the present discounted value of losses for consumers as a result of the implementation of the Durbin Amendment is between $22 billion and $25 billion.