Introduced by Senator Durbin in the Consumer Protection Act of 2010, it sparked a fight that has been ongoing now for almost three years. When one good thing happens, the other side- known as the credit card industry- seems to counteract whatever is done, and continues to send the costs right on down to the consumer.
What it was supposed to do
Before the Durbin Amendment, all merchant accounts, especially the high risk merchant services, were paying a whopping 44% of their fees to Visa, Mastercard, Discover and American Express. With those extra fees, the banks were offering free checking and rewards programs. With extra money coming in like that, it was easy for them.
When the Durbin Amendment went into effect, those fees dropped from the 44% all the way down to a 1-3% margin. It crimped the style of the banks and no longer could they give out the free checking and the rewards programs went away. But still, the trickle-down effect continued. The extra fee losses were given to the consumers in new fees from each transaction.
The ‘as promised’ lower costs for the consumers from the retailers did not happen, and extra costs were given to the consumer. Although, percentages for the merchant accounts were lowered for the fees, banks that have $10 billion in assets, are capped at paying twelve cents for their transaction fees.
The extra effects
Debit cards are supposed to have the lowest interchange fees, while high-limit signature reward cards have the highest interchange fees. With card not present transactions having higher fees and the PIN present, having lower fees. Larger retailers have always had the advantage of negotiating for lower fees, while small businesses like gas stations or restaurants and mom and pop grocery stores, have not. They are subject to whatever the card owners decide to give to them for fees.
At first, it may have appeared to have won some ground for the little guy, but with the power that the credit card companies have, the only difference was how long it took them to get creative and put OTHER fees into action to replace the one’s they had before.
It was a good idea that the Durbin Amendment had, but it only served to ruffle feathers, and in the long run will cost the consumers more and more. What probably will continue to happen is the big credit card companies will take the government on. Their pockets are a lot deeper, and their time is well spent trying to get more income for their companies. But, the little guy, also known as the consumer, will suffer for the extra fees that will begin showing on their bills. The merchant accounts will suffer and the business that is small will suffer. In the long run, it all trickles down to the people that can’t afford it to begin with. So, really what did the Durbin Amendment really accomplish? We may never really know, for all the other things it created will cover up all the good.