How Did The Durbin Amendment
Affect Consumers?
The Durbin amendment, passed as part of the Dodd-Frank financial reform legislation in 2010, required the Federal Reserve to limit fees charged to retailers for debit card processing. The amendment was a last minute addition added by Illinois Senator Richard Durbin, after whom the amendment is named. The Durbin Amendment gave the Federal Reserve the power to regulate debit card interchange fees.
Merchants cannot impose a surcharge on debit or prepaid card transactions. Surcharges can only be applied to credit card transactions. The Durbin Amendment specifically deals with debit transactions, including implementing a cap on interchange fees. (Worth noting: You won’t see those fees if your processor doesn’t support debit.)
On June 29, 2011, the Fed issued its final rule, which holds that the maximum interchange fee an issuer can receive from a single debit card transaction is 21 cents plus 5 basis points multiplied by the amount of the transaction. This rule also allows issuers to raise their interchange fees by as much as one cent if they implement certain fraud-prevention measures. An issuer eligible for this adjustment, could therefore receive an interchange fee of as much as 24 cents for the average debit card transaction (valued at $38).
The Durbin Amendment lowered debit card interchange fees (charges that stores pay banks when a customer makes a purchase), but also changed the rules by which they are applied.
Merchants that regularly process smaller debit card purchases may have seen costs rise sharply.Before the amendment, many banks and card issuers based transaction fees on a variable percentage of the purchase value, so merchants paid smaller fees on smaller purchases and larger fees on larger purchases. But after the rules took effect, Visa and MasterCard began charging the maximum amount for smaller transactions. So, for example, instead of paying a 6-cent interchange fee for a $3.50 charge for coffee and a doughnut, a shop owner suddenly faced a fee of 22 cents for the same bill.
Ironically, the Durbin Amendment had the effect of raising the cost of accepting debit cards for many small businesses who lost access to flexible market rates when the one-size-fits all Durbin rate cap was enacted. The law was written to benefit the largest players in the retail industry, not mom and pop merchants on Main Street, USA. Community banks, even those that were supposedly “exempted” from the Durbin Amendment, have faced increased compliance costs related to the law’s other provisions. State bankers associations representing thousands of local banks recently wrote to Congress to encourage them to repeal the law, which hampers their ability to serve their communities and small business customers.
When the rules took effect in 2011, big banks started recouping their lost revenue by increasing fees and limiting perks, such as debit card rewards programs and free checking. Many people believe that the Durbin Amendment has actually hurt consumers overall and hasn’t resulted in lower retail prices. After the Durbin measure went into effect, overall fees on deposit accounts increased an average of 3% to 5% because banks increased minimum balance requirements, monthly account maintenance charges, insufficient funds fees and inactivity fees.
The worst unintended consequences of the Durbin Amendment have impacted consumers in the lower economic class. Before Durbin, debit interchange fees supported consumer benefits such as low-cost checking accounts and debit card rewards. Once the interchange funding that supported these benefits was restructured by the law, consumers were hit with new minimum balance requirements, higher fees, and fewer rewards programs. The Durbin Amendment has made it harder to obtain low-cost mainstream banking services, especially the protections of a debit card-linked checking account.
Because the amendment doesn’t regulate swipe fees for credit cards, banks now offer more rewards options for credit cards.
The Durbin Amendment benefited many larger merchants, however, especially those that sell big-ticket items, as it cut the average swipe fee they pay almost in half. But it remains unclear whether savings have been passed on to consumers.
https://www.mastercard.com/us/company/en/docs/Interchange_and_Durbin.pdf
Merchants cannot impose a surcharge on debit or prepaid card transactions. Surcharges can only be applied to credit card transactions. The Durbin Amendment specifically deals with debit transactions, including implementing a cap on interchange fees. (Worth noting: You won’t see those fees if your processor doesn’t support debit.)
On June 29, 2011, the Fed issued its final rule, which holds that the maximum interchange fee an issuer can receive from a single debit card transaction is 21 cents plus 5 basis points multiplied by the amount of the transaction. This rule also allows issuers to raise their interchange fees by as much as one cent if they implement certain fraud-prevention measures. An issuer eligible for this adjustment, could therefore receive an interchange fee of as much as 24 cents for the average debit card transaction (valued at $38).
The Durbin Amendment lowered debit card interchange fees (charges that stores pay banks when a customer makes a purchase), but also changed the rules by which they are applied.
Merchants that regularly process smaller debit card purchases may have seen costs rise sharply.Before the amendment, many banks and card issuers based transaction fees on a variable percentage of the purchase value, so merchants paid smaller fees on smaller purchases and larger fees on larger purchases. But after the rules took effect, Visa and MasterCard began charging the maximum amount for smaller transactions. So, for example, instead of paying a 6-cent interchange fee for a $3.50 charge for coffee and a doughnut, a shop owner suddenly faced a fee of 22 cents for the same bill.
Ironically, the Durbin Amendment had the effect of raising the cost of accepting debit cards for many small businesses who lost access to flexible market rates when the one-size-fits all Durbin rate cap was enacted. The law was written to benefit the largest players in the retail industry, not mom and pop merchants on Main Street, USA. Community banks, even those that were supposedly “exempted” from the Durbin Amendment, have faced increased compliance costs related to the law’s other provisions. State bankers associations representing thousands of local banks recently wrote to Congress to encourage them to repeal the law, which hampers their ability to serve their communities and small business customers.
When the rules took effect in 2011, big banks started recouping their lost revenue by increasing fees and limiting perks, such as debit card rewards programs and free checking. Many people believe that the Durbin Amendment has actually hurt consumers overall and hasn’t resulted in lower retail prices. After the Durbin measure went into effect, overall fees on deposit accounts increased an average of 3% to 5% because banks increased minimum balance requirements, monthly account maintenance charges, insufficient funds fees and inactivity fees.
The worst unintended consequences of the Durbin Amendment have impacted consumers in the lower economic class. Before Durbin, debit interchange fees supported consumer benefits such as low-cost checking accounts and debit card rewards. Once the interchange funding that supported these benefits was restructured by the law, consumers were hit with new minimum balance requirements, higher fees, and fewer rewards programs. The Durbin Amendment has made it harder to obtain low-cost mainstream banking services, especially the protections of a debit card-linked checking account.
Because the amendment doesn’t regulate swipe fees for credit cards, banks now offer more rewards options for credit cards.
The Durbin Amendment benefited many larger merchants, however, especially those that sell big-ticket items, as it cut the average swipe fee they pay almost in half. But it remains unclear whether savings have been passed on to consumers.
https://www.mastercard.com/us/company/en/docs/Interchange_and_Durbin.pdf
