Durbin Amendment – Debit Card Interchange Fees Effective Oct 1, 2011

The Durbin Amendment with updated debit card interchange fees now effective Oct 1, 2011 will change the way banks, consumers and merchant account providers do business. The Durbin Amendment updates are going into effect at the beginning of October and most affect the debit card interchange fees.

Because the new rules instituted by the Durbin Amendment affect both consumers, the actual banks as well as the merchant account service providers, it is a good idea to have a clear understanding of how the Durbin Amendment, which will be updated on October 1, 2011, will affect you depending on which category you are in.

The Durbin Amendment:

The Durbin Amendment consists of changes made to the Financial Reform and Consumer Protection Act that was passed by the United States Congress in 2010. The idea behind the original act is to expand the Federal Reserve powers that set interchange fees related to debit card transaction processing. In the Durbin Amendment with the debit card interchange fees becoming effective Oct. 1, 2011 change the cap on the amount of interchange fees with only 12 cents per dollar instead of the 44 cents that used to be the cap. Interchange fees are charged by the retailers for each payment that is made or accepted with a debit or credit card. Before this amendment was passed, many banks made billions of dollars each year with these fees to cover fraud prevention protection and other types of administrative costs.

The idea of less fees is meant to benefit both merchant account service providers as well as the retailers themselves. However, now that banks will be out the money they used to charge on these interchange fees, someone will have to pay the difference or banks risk losing those billions of dollars. Most likely the people to cover the costs will be the consumer. Banks like Bank of America and JP Chase Morgan are beginning to announce charging for debit card usage each month. However, this does appear to be an advantage for the retailer or the merchant account service providers because banks will not be able to charge as much thus reducing the amount the bank charges and ultimately how much the retailer has to pay for their merchant account services.

Now according to the changes the Durbin Amendment brings, the retailers now have a choice in being able to select which debit network services they want to process their debit card transactions. Retailers are now able to give discounts to customers that tend to pay with a debit card or cash instead of credit cards.

Downside of The Durbin Amendment:

Unfortunately there are many criticisms of the Durbin Amendment for how it will affect consumers, banks as well as even merchant account service providers. Many are concerned that banks will try and limit the number of people using debit cards now that they aren’t making as much money per transaction. In addition to charging a monthly card fee for usage, banks might also try and cap debit card purchases and spending. With bank issued credit cards, they might offer rewards and other incentives to encourage users to purchase items with their credit card versus their debit cards. There is also other speculation about how banks could use this loss in how much money they make on interchange fees to simply add more fees elsewhere like paid checking accounts, service fees, etc. The idea is that this Durbin Amendment is supposed to create savings on merchant account services for the retailer, but there are other ways banks can make up for the loss. When it comes to the Durbin Amendment, time will tell if this change on debit card fees and interchange fees will actually be a savings to consumers and the retailers’ merchant account services or not.

To prepare for these Durbin Amendment changes, it is important for retailers to contact their merchant account services providers to ensure they are following the new rules set forth by the amendment, which might help with some of those savings on merchant account services fees per debit card transaction. Speak to a representative at the merchant account service provider company to find out exactly how the rates have been adjusted and to find out how that affects you as the retailer.