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How Will the Durbin Amendment Affect Me?

If you are not sure what the Durbin Amendment is, then read our article “What is the Durbin Amendment?” To describe it shortly: The Durbin amendment is an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection act (HR 4173) that was passed into law mid-last year.

With the Durbin Amendment alive and well, it’s important to know how this will affect you. It will vary depending on who you are, but we’ll cover businesses and consumers.

How Does Durbin Affect Businesses?

For businesses, the answers are pretty cut and dry. Ultimately, it will benefit you by lowering the interchange fees you pay on debit card transactions. But here is a quick rundown of the benefits:

  • You can charge for people using their debit cards.
  • You can have a minimum total requirement to use a debit card.
  • You will pay lower overall fees.
  • You will have the opportunity to route your transactions through a debit network that is cheaper.

Those are all pretty straightforward, except for the last one, but is probably going to be handled for you automatically either by your point-of-sale system, or by your processor.

How Does Durbin Affect Consumers?

This is the big question for many, and it’s a big numbers game. I am of the opinion that the consumer will come out as the loser on this. I believe this for a few reasons:

  • The merchants won’t be paying the fee, and the fee has to go somewhere. People (especially congressmen) want to think that this fee will just disappear, and that is silly to think.
  • Banks are legendary for not taking on fees. They figure out a way to pass it on to someone else. They are also good at figuring out how to make the new fees even more profitable. If they didn’t, banks would probably have left the business long ago.
  • Hiding fee hikes has become a science.
  • Most consumers won’t notice it, and if they do, they won’t give up the convenience, they’ll just complaining without changing.

Do you like free checking, free check cashing, free direct deposit, cheap loans, convenient hours, 24 hour customer service, less pushy bank sales representatives? Chances are, at least one of those things will be changed in some way. Many of those services are provided because they are supplemented by the profits earned from debit transactions.

Crouching Banker, Hidden Fees

Most likely, the fees will be built into loan interest rates, lower savings interest rates (yes, that is actually possible!), higher overdraft/late payment fees, and things of that sort. The reason they will change those fees first is because they are harder to see up-front, and many people have the attitude of “Good! People who overdraft deserve higher fees!”

Banks would only get rid of free checking and other services like that as a last resort because it will hit all of their customers, and it is such an obvious charge that they would probably get a lot of lash-back.

Merchant Trade Associations Say Otherwise

Many trade associations argue that the consumer will be the winner because merchants will be able to charge lower fees, but this is where I have my problems:

  • Would a merchant prefer lower prices or higher profits? They wouldn’t need to touch their prices at all, but earn more profit. That sounds like a win-win!
  • Let’s say a really honorable business owner lowers his prices the same amount that the fee was (which would defeat the purpose of eliminating the fee), will the cardholder still be saving if they are paying more to the bank for the same services they were receiving?

The trade associations argue that competition will lower the prices, here are my concerns:

  • Large retailers like Wal-Mart and Target already get preferential interchange fees because of their size and volume. Their savings on this probably won’t be all that much percentage-wise, so prices probably won’t come down all that much, if at all at these locations.
  • When was the last time you saw a convenience store charging competitive prices with Wal-Mart? To be honest, most super markets don’t really try to be competitive with Wal-Mart either. They depend on a captive customer: get you in the door with cheap milk or bread, and you’ll finish your trip there (that’s how the majority of people shop). You probably won’t see 7-Eleven stores across the country lowering prices because Wal-Mart knocked a nickel off of their chip prices.

Upfront Fees

Many large retailers may not do this, but you’ll probably start seeing many more “minimum price requirements” to use your card, or service fees. Before, Visa and MasterCard prohibited these fees, but now they’ll be able to charge these.

That isn’t to say that some merchants weren’t already doing this, but now they are allowed. It was hard for Visa and MasterCard to enforce this rule without people reporting, so hopefully there won’t be a huge move towards this practice.

The Consumer Loses

This is why it is important to watch where the government intervenes. I believe their intentions were good, but they just didn’t understand how it would affect things from all aspects. Undoubtedly, I believe this amendment will help businesses, but I hate when people try to pass things like this off as a consumer advocacy movement.

The consumer foots the bill 99 times out of 100. Let’s not act like prices didn’t go up when these fees became common. Any store that didn’t start calculating their interchange fees into their prices years ago is probably out of business.

Now, the consumer will be paying inflated prices (as a result of credit/debit cards becoming popular), they’ll be incurring larger hidden bank fees (or possibly visible fees like paying for checking), and you still might get charged for using a debit card! Government intervention at its finest.

What Are Your Opinions On This?

  • Do you own a business?
    • Are you happy about this amendment?
    • Do you think it will help you?
    • Will you lower your prices because of it?
    • Will you charge a fee for debit, or require a minimum purchase?
  • Are you a consumer?
    • Would you pay an annual fee for a debit card?
    • Would you pay for checking?
    • Would you leave your bank if they started charging these fees?
    • Will this push you to go back to cash only?
    • Do you only use cash already?
  • Do you think I’m wrong? Let me know, and why!
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