Consumers Will Pay as Durbin Goes Into Effect

Despite the fact that the Durbin Amendment to the Dodd-Frank Financial Reform Act was intended to have the best interest of consumers in mind, it seems like the end result will be instead an increase in the amount of money shoppers will have to shell out when paying for purchases with plastic.

On Saturday, October 1, the Federal Reserve will begin to impose an interchange fee limit of 21 cents per debit card transaction. Although in some instances, banks will also be able to change merchants an additional 3 cents. Currently the average “swipe” fee merchants must pay per debit cards transaction is around 44 cents.

Consumers can already look forward to shouldering a large portion of the burden of recouping the revenue banks stand to lose. That, as a result of new debit card “swipe” fee caps, as many banks have announced new fees that will be levied against users who pay with a debit card at the point of sale.

Additionally, some banks have scheduled fee increases to be instituted against checking accountholders and have either slashed debit card reward programs or eliminated them entirely.

But banks are also looking for other ways to make up the lost revenue. In the highly likely event that payment processing networks will increase merchant fees for credit purchases to make up some of the money lost by the debit card fee decrease; merchants will be overburdened with costs. Thus, they will have no choice but to somehow pass them along to their customers.

"What many companies aren't privy to is that these rate reductions are specifically for swiped debit card transactions. Visa and MasterCard have announced historically high credit card processing rate increases to offset these rate reductions," said Robert Livingstone, president and founder of consulting the consulting firm Ideal Cost according to an article appearing on the Marketwatch website.

"Merchants who accept cards over the phone or the Internet will see zero rate reductions and huge fee increases on their merchant statements. In this economic climate how are these merchants supposed to pay for these increased fees?” asks Livingstone.

Initially, the Durbin Amendment was supposed to set the limit for debit card interchange fees at 12 cents per transaction, but banks complained that number wasn’t high enough for their liking. The Fed then decided upon the 21 cent cap.

According to an article appearing in the Los Angeles Times, the Federal Reserve estimates that the actual amount it costs a bank to complete a debit card transaction is 4 cents.

"The Durbin Amendment touted itself as the end-all of all unreasonable merchant fees," said Livingstone to the Debt America website.

"Whether it was poorly drafted to purposely support only certain industries or miswritten completely by accident, it will result in harming American merchants. In this economic climate merchants are burdened with rising costs in almost every other aspect of their business. The last thing that they need is an unsubstantiated rate increase," stated Livingstone.