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The Durbin Amendment Turns Three
The amendment prevented banks from charging more than 24 cents per debit card transaction. Before Durbin, banks were charging roughly 44 cents per debit card transaction. In the aftermath of the market crash, congressional leaders thought that this price cap would help struggling consumers. Consequently, champions of the Durbin Amendment declared a victory for the American people. However, AFP opposed the Durbin Amendment. The victory for consumers was falsely proclaimed. Durbin’s amendment was actually a boon to retail companies who wanted the government to force debit card transaction costs downward. This did not change the real price of debit card transactions—that remained at 44 cents. Instead, it artificially lowered the price, leaving banks with a loss of 20 cents per transaction.
Battle over debit-, credit-card fees
‘When two elephants fight, the grass gets trampled,” goes the African proverb. The same can be said for the epic battle between banks and retailers over interchange fees – what retailers pay to accept credit and debit cards for payment. This battle has resulted in harm to consumers, community banks, and mom-and-pop retailers as Congress injected itself into the fight. Fortunately, this battle is finally drawing to a close. Last year the payments and retail industries resolved their differences through the court system, negotiating a $7.25 billion settlement to their dispute. All merchants – large and small – are entitled to a sizable sum from this settlement if they accepted credit or debit cards over the last seven years.
KFC/Taco Bell charging debit card fees
When customers use credit cards, it costs retailers money, and some businesses have started charging customers additional fees to help offset that expense. While it is almost unheard of to charge someone for using a debit card, Weaver Enterprises Ltd., which operates more than 20 Kentucky Fried Chicken restaurants, including the one in Newton, has begun doing just that.
Federal Reserve Announces They Will Not Revise Durbin Amendment Fee Caps
Debit Card Issuer Survey Also Finds Decline in Revenue for Small Financial Institutions Washington, DC – Today, the Board of Governors of the Federal Reserve System announced that it is not proposing any revisions to the debit interchange fee cap provided by Regulation II (the “Durbin amendment” regulation), following the publication of its report on interchange fee revenue and debit issuer costs – the second in a series to be published every two years, pursuant to Section 920 of the Electronic Fund Transfer Act (EFTA). In this report, the Board also finds that interchange revenue has begun to decline for smaller credit unions and community banks that were supposed to have been “exempt” from these price controls. In the report, the Board writes, “In contrast, the average interchange fee per transaction received by exempt issuers declined 4 percent, from 45 cent to 43 cent after the interchange fee standard became … Continue reading
Margin calls
Clamping down on payday loans would make more sense if regulators had not made it harder for retail banks to serve low-income Americans. The Durbin amendment—passed as part of the Dodd-Frank act in July 2010—capped interchange fees, the commission that merchants pay, on debit cards. One year earlier Congress passed the Credit Card Accountability, Responsibility and Disclosure Act (Credit CARD Act), which reduced interest-rate increases and late fees on credit cards. The CFPB is also looking at overdraft fees. Add in persistently low interest rates, which have eaten into banks’ net interest margins, and the economics of banking the poor is far less attractive than it was.
The rising cost of travel-card rewards
After tinkering with their credit-card rewards programs for the past few years, banks are now placing renewed attention on travel cards. Experts say the moves are partly a response to recent regulation. The Durbin amendment, which went into effect in October 2011 and is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, lowered the fees banks receive from merchants when consumers swipe their debit cards, but didn’t impact the fees for using credit cards. In response, many banks cut back on debit rewards while making credit cards more attractive by comparison.
Guest Post by Piotr Brzezinski: The Dark Side of the Durbin Amendment
The Durbin Amendment, in particular, looks spectacularly misconceived. By capping the amount banks can charge merchants for debit transactions, Durbin undermined the economics of providing bank accounts to poor customers; although debit interchange fees were unseemly — high profits; low marginal costs — they made it profitable to serve customers who wouldn’t otherwise warrant the cost of attracting their deposits.
Report: Free checking at big banks slowly disappearing
Stephen Wilson, chairman and CEO of Lebanon-based LCNB Corp., said he expects to see more banks following suit and adding fees as a result of the Durbin Amendment in the Dodd-Frank Act. The amendment caps the fee banks can charge per debit card transaction at 21 cents per swipe, less than half of what banks had been charging, in order to give more of the revenue to the merchants.
In Retrospect, Durbin Amendment Was Flawed From the Start
Merchants also are not passing along whatever savings they’ve derived from the law to consumers, as legislators had hoped. Consumers are actually paying 1.5% more at national retailers than before the Durbin Amendment took effect.
How Senator Durbin raised transaction fees
Senator Durbin would prefer Parkmobile to blame companies that issue debit cards. But, indeed, it was Dodd-Frank, the so-called Wall Street reform legislation, and Senator Durbin’s amendment to Dodd-Frank, which capped “swipe fees,” that caused debit card transaction fees on lower-priced items to rise.
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