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Why the Durbin Amendment Got it Right [2023 Update]

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The people in Washington aren’t exactly popular these days, and mostly for good reason.  Unemployment is high, the so-called economic recovery is weak, and small businesses are hurting.  However, another round of stimulus is on its way, and this time it might just work.  Even better, this stimulus comes at the expense of banks that got us into this mess to begin with. To be fair, there is plenty of blame to spread around but that is a topic for another day.  The Durbin Amendment went into effect October 1st, and many businesses will see a significant reduction in their monthly debit card processing fees.  This isn’t just for pin-based transactions, but applies to all Visa and Mastercard logo signature debit cards, as well as card-not-present debit card transactions via Internet and phone order.  On average, fees will be reduced by over 1% per transaction, resulting in a windfall for small business.

There are a lot of arguments against the Durbin Amendement.  I’ll outline and debunk the major ones here:

The savings will not get passed along to the merchants.

True, your merchant services company is not required to pass the savings along to you.  If you are on tiered pricing instead of Interchange plus, you aren’t going to receive the benefits.  But this is also creating a huge opportunity for merchant services companies like us to introduce customers to the benefits of our pricing model and to save them a very significant amount of money.  In short, if you’re merchant services company isn’t passing the savings along to you, it’s time to find a new merchant services company.

Merchants will not pass the savings along to their consumers.  

Again, true, but not necessarily the point.  In a free market, any time you create margin, you create opportunity.  Businesses all over the country are getting a little relief in their margins.  Some will choose to use that margin to compete on price.  Some will pocket the profits.  Many will use that extra profit to reinvest and grow their businesses through hiring and infrastructure enhancements.  No matter how you slice it, this is money directly to small business and that is great for the economy.

Banks will charge fees to offset the lost revenue.  

Sure, this is happening at some high profile institutions like Bank of America.  But other banks are also using it as an opportunity to lure you away.  Banks are limited by competition in terms of how much of the fee they can pass along to you before you bolt to a competitor.  That is the free market working the way it should.  When you take monopolistic fees like Interchange that are unavoidable to merchants and move them to the front of the transaction, consumers and small businesses ultimately win.  You now have the ability to shop for the best deal, where transaction costs were previously hidden and passed along in other ways.

Overall, the Durbin Amendment should provide a multi-billion dollar boost to small businesses everywhere, and the government didn’t have to shell out taxpayer dollars to make it happen.  Sure, it may be somewhat arbitrary, and too much regulation is never a good thing, but the card associations that impose Interchange fees operate as a cartel with monopolistic powers, so the government has a valuable role to play in the process.  We should all celebrate the Durbin Amendment and the tremendous benefits to small business.  If you’re not setup to take advantage of the savings, what are you waiting for?  Apply now!

What Durbin Will Change

Roundup of What Durbin Will Change

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The changes to interchange fees and debit card transactions brought on by the Durbin Amendment are just days away. The Official Merchant Services Blog is going to give its readers a quick hit of some of the chatter that is heating up the internet as we close in on the day the changes take effect. As with the previous articles, we’ll be using Host Merchant Services’ own Durbin Analysis as the foundation for comparison. We’ll be touching on 3 separate articles today so the comparison will be brief and focus on the highlights.

Citigroup Focuses on Credit Cards

The first article we find comes from The Wall Street Journal. This article points out how Citigroup is reacting to the changes that its competitors Wells Fargo and SunTrust are making because of the Durbin Amendment. Both of which were reported in our last Countdown To Durbin Blog, but can be summed up as both of those banks are going to implement a fee for debit card use that its customers have to pay each month.

Citigroup, according to the Wall Street Journal, is pushing an aggressive credit card campaign to its customers. Citi mailed an estimated 346 million credit card offers to North American customers in the third quarter of this year, the Wall Street Journal reported in the article.  The article suggests this move is at least partially motivated by a void that will be created by the Durbin Amendment:

“One potential void was created last year by an addition to the Dodd-Frank Act, which overhauled financial regulation. Known as the Durbin Amendment, the new rules, which go into effect in October, will limit the fees that banks collect from merchants each time a debit card is swiped, making cards far less profitable for the issuers.

As a result, some issuers are making debit cards less attractive by charging monthly fees and eliminating rewards. Citi is hoping to capitalize on this change by convincing dissatisfied debit customers to use its credit cards instead.”

This builds off of what our previous article found, that Durbin focuses on debit card transactions so one viable reaction to the Durbin changes is to switch focus to Credit Card Processing.

Consumer Reaction To “Too Many Fees”

The next article we cite comes from an NBC news affiliate in Indianapolis, IN, wthr.com. This article contains some evocative reaction from consumers regarding debit card fees. It cites what Regions Bank is doing in reaction to the changes from the Durbin Amendment:

“Regions issued a statement saying regulations have changed and, as a result, banks are adjusting how they cover the costs of providing debit cards. For some customers, that will mean a monthly fee for a debit card beginning in October. While Regions and other banks say the change is necessary, it isn’t popular.”

Which we have cited before as being a very popular reaction from banks regarding the federal regulations. This article quotes debit card using consumer reaction:

“I think it’s my money and I shouldn’t have to pay to use it,” said Andrea Moxley.

“Enough is enough. Too many fees,” said another woman.

This underscores the reaction that many of these articles are finding. Consumers, the group the legislation was supposed to help with its reforms, are not pleased with the shifted burdens that end up not helping them in the end.

Merchants Can Save

The final article we cite comes from Jennifer D’Angelo. It’s a blog of hers that goes into detail about how Merchants can take advantage of the Durbin Amendment changes to save money. D’Angelo suggests Merchants can save up to $1,200 per year because of the Durbin Amendment. She states:

“Under a new law called the Durbin Amendment that takes effect Oct. 1, any merchant that takes debit cards — from retail stores, restaurants, gas stations, and small businesses like chiropractor’s offices — could be eligible for up to $1,200 a year in savings on debit card processing.

In order to be eligible for savings, you need to ask your payment processor if they are passing along the benefits under the Durbin Amendment.”

It’s a very short piece that essentially suggests contacting your payment processor for more information about savings. But it does include the statistics about the cap the Durbin Amendment brings to debit card swipe fees (the previously reported 24 cents on the average purchase) as well as the cost of swipe fees in the past year (the also previously reported 44 cents on the average purchase). Which underscores how much of a difference the Durbin Amendment is forcing on the individual transactions.

These articles give three different perspectives on the Durbin Amendment: Bank, Consumer and Merchant. And gets right to the heart of the issue: Where will the savings that the legislation was designed to create actually end up going? Banks are making moves to protect the huge profit margins the fees provided them prior to the regulation. Merchants are capable of getting some savings, but it hinges on what their payment processors can do. And consumers may end up having to pay the same amount as fees get shifted to other, unregulated areas in the infrastructure of bank services.