Durbin Amendment Info



An Overview of the Durbin Amendment
The Durbin Amendment is an addendum to the Dodd-Frank Financial Reform and Consumer Protection Act passed
by Congress in 2010.  Its namesake, Senator Richard Durbin from Illinois, wrote the plan to expand Federal Reserve
powers for setting interchange fees related to debit card transaction processing. In setting the fees,the ultimate goal
is spur economic growth with lower fees. Theoretically, retailers could lower prices on consumer goods with the
savings on paying high fees to big banks. Lower prices might help to increase consumer spending.
The rules of the Durbin Amendment would cap the interchange fee for debit card transactions. Generally, interchange
fees are charged by retailers for each payment accepted with a debit card or credit card.Before the passage of this
amendment, the average charge from banks to retailers per transaction was 44 cents. According to the Federal Reserve,
banks collected nearly $16 billion annually on these fees to cover fraud prevention and administrative costs.
Beginning October 2011 – when the new law goes into effect – the charge will cap at 12 cents.
For retailers, this appears to be an advantage in reducing the amount of bank charges. However, some note that banks
will look for alternatives to the revenue loss. Consumers could end up paying the price, literally and figuratively,
for the lost revenue.
Additional Provisions in the Durbin Amendment
The Durbin Amendment only affects banks that have less than $10 billion in assets.Retailers have a choice in selecting a
debit network service to process the transactions. Before the new law, retailers could only use the STAR network to
process Visa transactions. This was required even if other merchants charged less.Retailers can give discounts to
consumers who pay with a debit card or in cash. Merchant agreements for both Visa and MasterCard currently ban this
practice toencourage credit card use.
Problems with the Durbin Amendment
Critics observe the looming problems with the Durbin Amendment, despite its positive provisions.Because credit cards
remain unregulated, banks may choose to increase incentives such as rebates and reward points to entice more spending
with credit cards. Consumers may see an advantage to using credit cards versus a debit card to earn the incentives.

VMS-Washington – What is the Durbin Amendment?

Smaller banks not directly affected by the Durbin Amendment could suffer revenue losses. Market forces might require
small banks to lower rates to remain competitive. Currently there there are restrictions on banks for requiring minimum
purchases with debit cards, however fears do exist that with this new legislation that many banks may try and change this.
For example, bankscould decide to cap debit card purchases at $100, limiting big ticket purchases. Instead, consumers
will be forced to use acredit card,prepaid debit card or cash. Purchases are limited for consumers who have bad credit
and no credit card.  Anotherproblem is banksmay transfer the fee to consumers to offset revenue losses. One way this
could occur is by changing the termsfor free checking accounts. It is possible that banking competition will prevent such
How the Durbin Amendment Impacts Small Businesses
For all of its intentions to improve economic activity, this legislation will impact small businesses in several ways.Most small
businesses pay more to provide discounts than for debit interchange fees. This leaves most at the mercy of a pricing
strategy. A tiered system with a merchant service company could cost more.  Small businesses could realize very little in
actual savings proposed by the Durbin Amendment. For example, merchant services may have a coded system that equates
to other fees such as down-grades and hidden mark-ups.  In essence, small businesses may not see any savings initially
because of blended contract agreements. The net effect is that consumers who purchase from these businesses will not see
any savings.  Small businesses that currently do not accept debit card payments would not see any savings.  If banks raise
banking fees, they may include small business checking accounts.  Nearly 15 million small businesses have active checking
accounts. It is estimated that small businesses could pay as much as $4.8 billion in higher fees during the two years after the
Durbin Amendment is implemented. Many small businesses will need to analyze their debit card transactions. This could help
to determine whether savings is possible with their current provider, or if switching to one with lower fees is worthwhile.
What works for one small business may not benefit another based on the payment card consumers use.
The Durbin Amendment was passed to increase economic activity among consumers and small businesses. The interchange
fees enforced by the Federal Reserve could add more cost than savings to both groups. Market competition may drive
banks to shift the lost revenue onto small businesses and consumers.

VMS-Washington – What is the Durbin Amendment?

Larger businesses may benefit more from the reduced interchange fees and have more flexibility to pass those savings on to
consumers. However, the law allows small businesses to select its merchant service for transactions. This provides more
options in providing a merchant service provider with reasonable fees.  A big key here is that it still falls the each small
business toensure they are saving money with the new legislation. Make sure when you call your current credit card
merchant account provideor the one you are thinking about signing with, that they are aware of Durbin and have adjusted
their pricing to passon these savings. If the representative can not quickly speak to how they adjusted their prices, or worse
seems confused as to what the Durbin Amendment is, then it likely means you should find a different merchant service
provider to work with.  Dueto the overwhelming replies and inquiries VMS-Washington wants to help your business out by
giving you rock bottom rates for your processing.  We also can help your business by giving you great rates for unsecured
business loans with an 90%approval rate for start-ups and existing businesses.  Call or email us if you want to know more.

Michael Roberts

(800) 531.8575 ext. 697

VMS-Washington – Durbin Amendment