Durbin Amendment – What is the Dubin Amendment?

The news has a lot about the Drubin Amendment. What is the Durbin Amendment and how does it affect merchant accounts and businesses that use merchant account services? To be honest it is all quite confusing and still mostly up in the air about how it will actually affect businesses, customers, and merchant account providers. For more detailed information about the Dubin Amendment read our full article: Durbin Amendment – Debit Card Interchange Fees Effective Oct 1, 2011.

In this post we briefly discuss what the Durbin Amendment is and then take a look at how the Durbin Amendment affects merchants and businesses using merchant services. The Durbin Amendment, in essence, places a cap on per transaction “swipe fees” banks can charge on debit card transactions. The limit used to be 44 cents, the new limit has been reduced to 21 cents. What does this mean? Banks are losing part of their profit from every debit card transaction, estimates say banks will lose between $5 and $10 billion a year.  The cap is meant to force banks to charge a reasonable fee, based on their actual costs for processing the payment, to merchants.

Obviously if banks are looking to lose up to $5 billion a year, they aren’t going to just stand by and ignore the change. Already Bank of America has announced that they will charge a $5 monthly charge to customers making debit card purchases. Other banks including Wells Fargo and JPMorgan Chase have announced a “test” monthly fee of $3, that they are trying out in selected locations. It seems as though banks are losing money, merchant account providers are saving money, and the end customer is going to be the one paying for it. Already talk of customers switching to credit card purchases instead of debit card purchases, fees for other banking services such as a checking account, or reduction of rewards programs and free premium banking services are all possible effects of the Durbin Amendment.

It is hard to tell what the long term results will be. Right now there is much speculation about how banks will handle the change and how costumers will respond if banks start charging monthly fees for making debit card purchases. The Amendment was created with the idea of saving merchants money. Because the merchant is the one paying these fees, it would stand to reason that they would be the ones receiving the big break. However, there are arguments that most merchant service providers use acquirers, or middle-men, and that they would be the ones to actually reap the benefits.

The Durbin Amendment itself is actually pretty simple, the complicated part is how it will affect the many different financial institutions, and then customers and their behaviors. Right now those looking for merchant services will probably not see any difference in pricing of fees until the merchant account providers find out how they will be affected. Right now there is still a lot of controversy about the Durbin Amendment and whether it is good or bad. Consumers are upset because if banks are losing money, they will be charging more for their service, thus costing customers more money. We will keep an eye of the Durbin Amendment news to see just what happens.

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