Straight Talk: Preserve the dual routing mandate

Most of the trade groups that represent banking are advocating repeal of the Durbin amendment. U.S. Rep. Randy Neugerbauer (R-Texas) introduced legislation earlier this summer to dump the amendment, which was written into the Dodd-Frank Act. Neugerbauer's bill has been folded into the Financial CHOICE Act, a broad reg relief bill introduced by fellow Texas Republican Jeb Hensarling. Nobody in the banking industry likes the price caps the Durbin amendment puts on interchange fees associated with debit card transactions. I agree that the price cap is anti-competitive and should be repealed, especially since consumers are realizing virtually none of the promised savings..But the Durbin amendment does more than cap interchange fees. In addition, it requires dual routing for the processing of debit transactions. Codified in Reg II, Durbin requires card companies to give consumers and merchants a choice of payments networks. Mandated dual routing gives many smaller card issuers and card networks the opportunity to participate in the payments system. This is good for consumers, merchants and community banks. Without the mandate, the payments system would be monopolized by one or two large players. Without the dual mandate, community banks would find themselves completely dependent upon Visa or MasterCard for access to a major portion of the payments system. While those two card giants might be good partners, community bankers are simply better off having more potential partners rather than fewer..Consider that at the end of July, Visa announced a partnership with PayPal, advancing a payments option that excludes banks. These are two industry giants getting together in a way that could completely upend the payments status quo. Community bankers should be suspicious of arrangements which push them out of the payments space..Given the political environment, the movement to repeal Durbin — let alone Dodd-Frank — is not likely to go anywhere in the next few months. After the dust settles on the elections this fall, bankers should reach out to the merchant community and card companies to coordinate a lobbying effort that preserves dual access. Elected officials could not afford to ignore this powerful coalition. The value of the payments system to the banking industry cannot be overstated. Bankers must do all they can to prevent control of the payments system from being consolidated into the hands of one or two players.