Prices on Shopping Trips Lead to Swipe at Durbin Rule

NEW YORK ( BankingMyWay) -- Has the so-called "Durbin Rule," which capped the fees debit card providers could charge retailers, been a swing-and-a-miss for consumers?

Durbin Rule advocacy groups think it's been great, even if others beg to differ.

"Debit swipe fee reform has been a win for consumers and Main Street businesses, especially small businesses," says Mallory Duncan, chairman of the Merchants Payments Coalition. "While the Federal Reserve should have done more, experience has proven that Congress got this one right. Limiting price-fixing is always better than letting it continue and where fees are lower, prices are lower."

The MPC points to retailers such as Home Depot ( HD), which curbed prices on more than 3,000 items thanks to debit card fee reform, according to the group. And more companies, including bargain airline carrier Allegiant Air are offering cash discounts to consumers who use debit cards.

But other groups aren't so sure about debit card fee reform.

The Electric Payments Coalition says merchants may indeed be seeing lower debit card fees from banks, resulting in higher revenues. But those retailers are not passing those savings along to consumers, the EPC says.

"With a wink and a nod, giant retailers promised to lower prices for their customers if Congress passed the Durbin amendment," offers Trish Wexler, spokeswoman for the Electronic Payments Coalition. "One year after implementation, retailers have taken home $8 billion while many of their customers pay more at the register. Let's just call a spade a spade - this was a political handout to big box retailers, who are now scrambling to make excuses for why they couldn't pass these savings along to customers."

The EPC conducted its own study on the impact of the Durbin Rule on consumer prices at the register. The group launched 36 shopping trips to 18 big-box stores and smaller retail chains across the U.S., with half the shopping excursions occurring one week before the implementation of debit card fee reform (in September 2011), and half the trips taking place last month, one year after the Durbin Rule was enacted.

What did the EPC find?

 According to the group's report, after debit card reform was enacted, consumers paid, on average:
  • $2.22 (or 6.6%) more for the same items at Home Depot in Atlanta. "Despite this retailer's claims to the contrary, our shoppers saw price increases at this chain more than any other," the EPC says.
  • 80 cents (or 5.4%) more for the same items at Wal-Mart (WMT) in Portland, Maine.
  • $1 (or 2.6%) more for the same items at 7-Eleven in Washington, D.C.
  • 30 cents (or 2.9% more_ for the same items at Walgreens (WAG) in Boston.

The EPC points out that even as prices are higher for consumer goods across the U.S., big banks are fighting back against loss revenues due to the Durbin Rule by cutting free checking programs, slashing rewards cards programs and hiking fees in other areas.

"These higher prices for consumers come as retailers save billions and debit card issuers are forced to make up for lost revenue," says the EPC in a statement. "Consumers are paying more for traditional banking products and services and not even getting any reduction at the register to help ease the pain."

Still, there is no solid evidence higher retail prices are due strictly to debit card fee reform.

With the price of commodities rising, retailers have to pay more for such things as oil and gas, and indirectly for foodstuffs including corn and soy, which have also risen in price in the last year. No doubt they're charging more to consumers to make up for it.

But that doesn't change the fact consumers aren't seeing much of a return from the Durbin Rule. Apparently, retailers are taking the savings from debit card reform and pocketing the profit, as consumers once again find themselves between a rock and a hard place in a roiling economy.