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Durbin Saga: Banks Reconsider Fees [2023 Update]

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The Official Merchant Services Blog brings you a breaking news story following the ongoing aftermath of the Durbin Amendment legislation. Yesterday, Bank of America announced it was going to cancel its $5 monthly debit card fee plan. This falls in line with similar announcements from Sun Trust, Regions Financial Corp., JP Morgan Chase & Co. and Wells Fargo all stating they were no longer going to test monthly debit card usage fees at all.

As previously reported, there has been a staunch amount of criticism and backlash against Bank of America after it announced it was going to charge customers a $5 monthly fee to simply use their debit card. The bank was one of a group of banks gearing up to charge fees for debit card usage, all in a response to a debit card swipe fee cap that was instituted by the financial reform legislation in the Durbin Amendment. This reaction was predicted by Host Merchant Services earlier in the year when the company analyzed the Durbin Amendment and its potential impact.

As reported by The New York Times yesterday: “Bank of America blinked on Tuesday. The bank, the nation’s second-largest, said it was abandoning its plan to charge customers a $5 fee to use their debit cards for purchases. Only a month earlier, the bank had announced the new charge, immediately setting off a huge uproar from consumers.”

Primary Target

Bank of America became the most high profile target of consumer backlash and had a polarizing effect throughout the media on this issue, thrusting the Durbin Amendment and big banks firmly into the spotlight. Part of what made Bank of America the primary target for the Durbin Amendment stories was that they were the only bank that declined to test the fees, deciding to just add the fee starting in 2012. Another part that made Bank of America a target was their position as the leading bank in terms of debit card transactions. And finally, Bank of America made such a tantalizing target because of its history with receiving federal bailout money and their foreclosure practices which caught the attention of the Occupy Wall Street protest movement.

As reported in a Business Week article: “Bank of America Corp. is scrapping its plan to charge a $5 monthly fee for making debit card purchases after an uproar and threatened exodus by customers.The about-face comes as customers petitioned the bank, and mobilized to close their accounts and take their business elsewhere.”

You can review much of that saga in Host Merchant Services own Countdown to Durbin blog series.

Last Bank Standing

And while the customer outcry and criticism was certainly a factor, it’s also worth noting that Bank of America came to this decision after all the other major banks backed off fees. As reported by the New York Times: “Despite an outpouring of complaints online and at branch offices, the bank had remained steadfast in its plans until last Friday, according to a person briefed on the situation, planning to ease just some of the conditions for avoiding the fee. But over the weekend, after two major competitors — Wells Fargo and the nation’s largest bank, JPMorgan Chase — said they were backing away from their plans to levy similar charges, two high-ranking Bank of America officers recommended to Brian Moynihan, the bank’s chief executive, that the bank simply drop the fee.Then, on Monday morning, when SunTrust, a regional bank in Atlanta, said that it, too, would abandon its $5 charge, Bank of America was left standing alone, the last major bank planning the fee. The announcement came on Tuesday.”

And also reported by Business Week: “The outcry had already prompted other major banks, including JPMorgan Chase & Co. and Wells Fargo & Co., to cancel tests of similar debit card fees last week. SunTrust Banks and Regions Financial Corp. followed suit on Monday.”

What Next?

This move by the banks, however, leaves them still searching for a way to offset the losses that the Durbin Amendment and other financial reforms are going to force onto them. The New York Times article suggests: “Now that all the large banks have decided not to impose the debit fee, experts said, they will find other ways to fill the hole. ‘Those revenues paid for a lot of things,’ said Joe Gillen, chief executive of Pinnacle Financial Strategies, a bank consultant in Houston.

Now, he said, consumers can expect more fees over time. ‘It will be slow and gradual, but they will bring those revenues back,’ Mr. Gillen said.”

And the Business Week Article stated: “In particular, banks in the past year have blamed their fee hikes on a new federal regulation championed by Senator Dick Durbin of Illinois. The law, which went into effect last month, caps the amount banks can charge merchants whenever customers swipe their debit cards. JPMorgan has said it would lose $300 million each quarter as a result of the regulation; Wells Fargo said it would lose $250 million a quarter.”

The Official Merchant Services Blog will continue to keep you updated on all aspects of the Durbin Amendment. With the banks backing off of their proposed fees, it looks like the next development may hinge on the viability of the October 14 bill introduced into Congress to repeal the Durbin Amendment.

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.