The Trump Administration has made moves and signals that it wants to repeal all or part of Dodd Frank financial reform.
Airline Weekly (Feb 20, p.10 – subscription only) notes that Wolfe Research believes repealing Dodd Frank financial reform would cost the airline industry $215 million per year in higher debit card fees.
Dodd Frank killed interchange on debit cards. They’re no longer profitable products for banks to offer, and can’t be by law. The Durbin Amendment which is part of Dodd Frank limited debit card interchange payments to banks with over $10 billion in assets to 21 cents plus 0.05% of the transaction amount and one cent for fraud prevention. By law debit card charges must be proportional to cost, they cannot be a profit center.
The profitability of debit cards made checking accounts profitable for banks to offer, without this many banks have required direct deposits and minimum balances to avoid monthly account fees. In other words, transaction fees paid for bank accounts and now consumers do.
The interesting thing about the claim that the airline industry would be hurt by repealing this rule is that the airline industry was probably the most hurt by the rule! That’s because debit cards used to be profitable enough for banks to offer that they incentivized transactions by buying frequent flyer miles. Dodd Frank effectively killed that business.
Debit transaction volume exceeds credit card transaction volume (although doesn’t generate interest charges on unpaid balances). Repealing the law that debit transactions cannot earn profit for big banks would restore the revenue flow that caused banks to compete for the business, and caused them to incentivize transactions. That creates a major market.
Mileage sales to incentivize debit transactions won’t be as large as credit cards — US airlines receive over $7 billion a year from credit card issuers for co-brand credit card deals. But $215 million is chump change.
Revenue in the US airline industry, by the way, exceeded $155 billion in 2016.