Banking Blog

Finance Blogs » Banking » Durbin hasn’t cut debit card costs

Durbin hasn’t cut debit card costs

By Claes Bell, CFA · Bankrate.com
Tuesday, November 29, 2011
Posted: 3 pm ET

Looks like for all the controversy surrounding the Durbin Amendment, the total cost to merchants for processing debit card transactions has barely budged, and in some cases, actually risen. From Robin Sidel at The Wall Street Journal:

In some cases, companies that process transactions on behalf of merchants are raising select fees while refusing to pass on to merchants the lower rates now charged by banks, according to letters sent to business owners.

Separately, some merchants that process a large number of debit transactions for small purchases -- for example, under $15 in some cases -- are seeing those rates rise because Visa Inc. and MasterCard Inc. have eliminated discounts that they had previously offered.

"What's now becoming clear is that the winners are few and far between, as gains for some of even the very largest retailers seem illusive," says Tony Hayes, who specializes in the payments industry at consulting firm Oliver Wyman.

You'll recall the Durbin amendment set limits on the amount of money banks can charge merchants for processing debit-card transactions. The limits, set by the Fed, cut bank revenue on each transaction from an average of 44 cents per transaction to about 24 cents.

While it's still early, and the anecdotes cited in the WSJ story aren't a substitute for a detailed analysis of industry-wide debit card-processing fees, if debit card processing costs end up staying the same or even rising in the wake of Durbin, it's going to mean a doubly raw deal for debit card users.

Not only have debit users largely had their debit card rewards programs gutted, but banks everywhere have been raising checking fees to try and compensate for the loss of swipe-fee revenue. Should merchants fail to see their debit-card costs fall, consumers will have paid these costs with no hope of realizing any of the retail price benefits promised by Durbin amendment supporters like the National Retail Federation.

What do you think? Will the Durbin Amendment ever work as intended to lower retail prices?

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
5 Comments
Jack
December 01, 2011 at 1:53 pm

Actually in the wake of the BofA debacle, many banks announced they would not be adding fees on consumers and small banks used it as a fantastic marketing opportunity to get new customers by promoting no fee products. So not sure where you see "banks everywhere have been raising checking fees" because mine specifically contacted me to say they weren't.

Meagan
November 30, 2011 at 10:01 am

I think it may be too early to tell. With the economy still recovering, companies and banks are trying desperately to generate revenue. Thanks for highlighting this WSJ article. The more pressure the processing companies feel from consumers, the more likely they will be to pass on their savings to consumers.

Homeless
November 30, 2011 at 8:57 am

WHY IS THIS SURPRISING TO ANYONE? THE GOVERNMENT STUCK ITS NOSE IN WHERE IT DIDN'T BELONG AND NOW THE CONSUMERS/TAXPAYERS HAVE TO SUFFER...IT'S THE SAME STORY OVER AN OVER...MEANWHILE I BET DURBIN GOT SOME NICE PERKS FROM THE RETAIL LOBBYISTS FOR GETTING THIS THING PUSHED THROUGH.

AND EVEN IF THE CUTS WERE WORKING IN THE FAVOR OF THE RETAILERS, THEY WOULD NEVER PASS THAT ON TO CONSUMERS...THEY WOULD LINE THEIR POCKETS...

WE VOTERS NEED TO SMARTEN UP AND START BEING MORE DEMANDING OF OUR "REPRESENTATIVES". WE NEED TO PUSH FOR MORE LAWS GOVERNING THEIR ACTIVITIES, LIKE CAMPAIGN MONEY, LOBBYING SHOULD BE TERMINATED AND THEY SHOULD BE SUBJECTED TO THE SAME INSIDER TRADING RULES AS THE REST OF US.