Durbin Amendment with Kevin Von Holten // Cornerstone Hot Takes

Hey, GonzoBankers. Tony DeSanctis back with another hot take. We’re going to go into the second regulation in the series as we talk about the latest things out there that we’ve got to be aware of from a payments perspective.

So what I want to focus on right now, Tony, is tell me what’s changing with Durbin.

Durbin 1.0. So the original regulatory cap is $10 billion. We all know that, right? Once you hit $10 billion, your interchange basically goes from probably a blended 38 or 39 cents down to 21 cents. So that’s already a major impact for anybody who’s close to or thinking about crossing $10 billion.

Again, this isn’t a regulatory change. This is in the existing legislation. The Fed can and should review the cost of debit processing on a regular basis and adjust downward, ironically not upward for fraud, any decreases in debit processing costs.

The Fed has come back and basically said the appropriate margin for you, which used to be at 21 cents, is now going to be at 14.4 cents.

That’s insane. I mean, what is that going to be on a percentage basis? What are we losing?

It’s 31% for everybody who’s already over $10 billion. But what’s missed in that discussion is the fact that anybody getting close to $10 billion is looking at probably a 60% to 70% impact because they’re going to be going basically from, let’s call it 40 cents to 18 cents, or 38 cents to 18 cents.

So it’s going to be massive, and that’s why we’ve got clients looking today to try and do whatever they can to stay under that $10 billion mark.

Let me ask you this. $10 billion in 2011, whenever this came through, what do you think it’s worth today?

I mean, it’s not even close. I think there were sub-20 $10 billion institutions back then, and now there are over 100.

It would be a $14.5 billion institution today.

Yeah. For some reason, that number didn’t change, so now we’re stuck. Even Barney Frank, who wrote the legislation, has said $10 billion was too low to start with, which is why the next legislation we’re going to talk about is set at $100 billion. That doesn’t solve the problem, but at least it would have mitigated some of this impact.

The way that I would frame this for folks, and the easiest way to think about it, is we sized an impact for a client who was a $9.9 billion institution. So, on the cusp. They have 269,000 debit cards today.

In order to cross $10 billion and generate the same amount of revenue they do today, they would need to add an incremental 498,000 active debit cards. They basically would have to grow their active debit card portfolio by 188%.

Impossible. That’s just not going to happen.

It just can’t happen. So you have to find 30 different strategies to mitigate the revenue impact. We’ve got to look outside of just that non-interest impact at this point.

So obviously, for anybody close to $10 billion, or even over $10 billion, the final ruling in terms of what the actual number is going to be hasn’t come out yet. We’re cautiously optimistic it could be a little bit more than 14.4 cents, but it’s not going to be 21 cents.

So if you’re close, you’re on the verge or even if you’re over, definitely make sure you’ve got that sized up correctly and you understand that impact.