It seems no matter which news publication I visit, a journalist is reporting on the Durbin Amendment and how its new rule to limit merchant interchange fees on debit cards is affecting either the institution, organization or individual. To paint a full picture, I thought it was time to outline how it affects each party involved.

In case the Durbin Amendment is new to you, let me quickly outline what the new law regulates. Essentially, it takes the fee banks charge merchants to process debit card payments from 20 cents per swipe and cap it at 12 cents. The goal is to decrease overhead costs for merchants, which would hopefully prompt them to lower product costs benefiting the customer.

The proposed rules are slated to be sworn in by April, 2011.

It is also important to note that the rule only affects banks with assets of $10 billion or more, but as I will point out later, this is not really the case.

Banks over $10 Billion in Assets

With an estimated $12 billion a year in revenue at stake, banks like Bank of America and Chase will no longer be able to charge their current high interchange fees to merchants whose millions of customers use the banks debit cards everyday.

If this rule goes into effect, banks will look for new ways to cover the loss in revenue and in most cases the consumer is the one who will be taking the blunt of the hit. To make up the difference, banks have started to adjust their checking account offerings, adding new fees and upping the requirements to avoid existing fees. A good example is one that Simon, one of our journalists pointed out, which highlights that the debit card fee cap has lead to big banks removing debit card transactions as a requirement to avoid monthly fees.

Other changes that have become more common is the requirement to register for online banking and switch to e-statments instead of paper statements.

Credit Unions

Though we rarely cover Credit Unions at (though we plan to change this….) I figured it would be a mistake not to talk about these institutions. Though most Credit Unions have less then $10 billion in assets and therefore exempt from this fee cap, it seems they may still lose out. An article on, points to the fact that most merchants work with networks instead of individual banks.  Unlike Visa or Mastercard, who have the capabilities to manage different fees depending on the size of the institutions, these low cost payment networks group all the institutions together at one fee, pretty much wiping out any advantage the Federal Reserve attempted to give Credit Unions.

Federal ReserveFor Credit Unions this is a tough move as more than 75% of them still offer free checking with no strings attached. As profits are cut, they will either have to layoff staff, or find new ways to stay in business. In an attempt to avoid raising or introducing new fees to their checking accounts, Credit Unions have taken action to cover costs lost by increasing other fees such as non-ATM usage; imposing higher minimum balances to open the account; and applying a larger penalty for over drafting.

Merchants (Retailers)

At the end of the day, it was the protection of merchants that really led to the creation of the Durbin Amendment. Now that it looks like it could become a reality, its important to understand why they have been all about this change.

Jinger Duryea, President of CN Brown, owner of Big Apple convenience stores in Maine shared his story, to paint a better picture of how they are currently effected.

“Credit cards are the lifeline of my business as customers use plastic for everything from; a cup of coffee, to a pack of gum, to a tank of gasoline. Credit cards and debit cards are easy to use, but what customers don’t know is that every time they use a credit card, I pay a fee. For example, a customer purchases a local newspaper (75 cent retail) my profit is 9 cents. If the customer is using a debit card I would pay 25 cent for the transaction fee plus .08% interchange fee. If the customer puts down a Visa credit card the transaction fee would be 19 cents plus 1.68% interchange fee. Regardless of the payment option I lose money on the sale.” (source:

Reading Duryea’s story, it sounds like this change is valid, but what about the mega-stores like Wal-Mart, Target and Costco. These stores have been undercutting the smaller mom and pop shops on items we purchase since their beginning. It only makes sense that they will be able to negotiate even lower fees with the 12 cent cap—giving them an even bigger opportunity to drop product costs and draw more consumers.

You the Consumer / Customer / Member

When the Feds recommended this new cap, the hope was if merchants are charged less from banks that they would lower the cost of the items consumers purchase. While it makes sense, I have a hard time believing that these for-profit merchants will skip out on an opportunity to make more money – keeping the cost of goods the same. Let’s not forget, that they’re a business at the end of the day.

To recap, this new rule seems to affect the consumer the most. Consumers continue to be charged the same price on the goods they buy every week. They loose some of the benefits that the banks offer, such as rewards, high interest rates and no fees, instead creating a need to change your banking habits to avoid monthly fees.

Prepaid Cards #WINNING

As the dominos align themselves to fall, it is the Prepaid market that seems to be in the perfect position to benefit from this change. A study preformed by Bank 2.0 author Brett King, found that the new checking fees caused by the Durbin Amendment could cause up to 5% of banked consumers to leave the traditional banking systems.

This swift change, along with findings that highlight that U.S. consumers could save more than $141.65 on annual fees going the prepaid route is why the prepaid market is on pace to reach $200 million in 2011.

What do you think?  Are consumers getting the worst of this change or will additional rules be put in place to keep banks from adding additional fees?

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  • ZZ

    Consumers are getting hosed on this one. Banks and CU’s receive interchange because essentially they are insuring the transaction and merchante is guaranteed payment. Whereas in the past, merchants lost thousands each month in bad checks. Merchants no longer have that bad check cost but they now have interchange instead. What they fail to mention is that their bank also charged them a fee for every check and for cash deposits in the past so they still lost money if someone wrote a check for that newspaper. how about how many fewer employees they have to pay with prepay pumps too? Wouldn’t have that cost reduction without card acceptance either. However, it would be nice to see a smaller interchange fee for transactions under $10 or just stop allowing small debit card purchases under $10 altogether. but keep in mind, the consumers are already paying these costs now as they are built in to merchant’s current prices, if you take away 70% of income from banks via debit cards the banks and CU’s MUST make up for this loss of revenue.

  • Tinktye

    I’m not sure how this affect me as a consumer. My bank just notified me that they will no longer offer a rewards program on my debit card. I don’t see any mention of this in any of the articles.

    • Not knowing what bank you have, there is a possibility that the lost of your rewards program could be directly tied to the banks preparation for loss revenue due to these new rules. As a consumer it seems that your bank may have eliminated the perks your debit card offered instead of adding new fees.

  • YadaYada

    The banking lobby wins again and the consumer continues to get screwed. If you don’t have a lobby on Capitol Hill to protect your interest, congress does not want to talk to you – well until election time.

  • Small Business Owner

    All of these comments are completely short sighted. I am a small business owner, and 95% of my sales are paid by credit cards. The swipe fees are outrageous. On an annual basis, most small businesses can guarantee paying between 2.75% and 6% of sales to the banks and to the credit card companies, just so they can accept credit cards and debit cards. Companies like American Express take interest and fees from the consumer, and fees from the merchant from the same transaction. Not to mention the $300-$700 credit card machine, and the draconian contract obligations when a business signs up with a credit card processor. In today’s consumer market, not accepting these forms of payments is simply not an option. The banks and credit card companies have businesses over a barrel. When you are in a business that has small proft margins, such as a restaurant, convenience store, small lodging establishment, local hardware stores, etc., these fees have a serious impact on the bottom line. And this ultimately comes back to consumers. What you might gain by not supporting the Durbin amendment, you will lose when you make purchases, because businesses are not going to pay these fees on your behalf out of the goodness of their hearts. The cost of goods and services will continue to rise. 6% of sales would also go a long way to hiring a new employee. The fees are absolutely a burden to businesses, and regulation must be put into place because they are simply usurous. As to the point in the article that lowering the fees will make Wal-Mart more competitive, thus hurting small businesses is simply bunk, and clearly made by someone who has never run a small business. Small businesses will always have to compete with big box retailers, no matter what is going on in the financial and banking industries. We have to compete with them now. Regulating these absurd fees will help small businesses remain competitive, due to economies of scale. That 2.5-6% of sales has a much more dramatic impact on a smaller business than a larger one. Thus, even a small decrease in those fees will provide much more assistance to a small business than a larger one. Frankly, I could care less if wal-mart’s fees decrease–that won’y impact my business one way or the other. What will impact my business is a reduction in these usurous fees.

  • Cynlyn

    Guess I will go back to cash only now…geez…..