On July 21st 2010 President Obama signed into law, Barney Franks Restoring American Financial Stability Act of 2010. The purpose of the bill is to protect American consumers from abusive financial practices and create accountability and transparency in our financial systems. Some of the specifics of the Act can be read from the actual bill (link above) or Wikipedia already offers a solid outline on the regulatory agency's and issues - check it out.
Tucked neatly inside the bill is what interests us - the Durbin Amendment . In basic terms, the bill amendment gives the Federal Reserve final say on whether or not debit card interchange fees proposed by Visa and MasterCard are reasonable and proportional to the actual processing costs. It would also allow merchants to offer discounts for non-card purchases as well as the power to set minimum/maximum card purchase amounts. Not surprisingly the amendment was strongly supported by our largest retailers and merchant groups, claiming their lower costs would also benefit the consumers via a lower cost of goods.
Like the rest of the law - it will take time to clarify, study and then finally implement - and the federal government has a year to determine what reasonable and proportional is. Banks with assets under $10 billion are exempt from the regulation.
Advocates of the amendment often refer to all interchange as a "hidden tax", but interchange was introduced with credit cards and why is this cost of doing business different from the cost of utilities, shipping, and various overhead that we know from business 101 is incorporated into the cost of goods sold? A May 2010 article in the WSJ was the first I've read lambasting what we tend to forget - cards have been a coup for retailers and consumers. The consumer gets protection in the case of a bad purchase or return policy, rewards, efficient tracking and reporting on purchases, payment convenience and the retailer increases sales, reduces theft at the register, limits fraudulent checks, etc. There ARE benefits.
So what's going to happen? the fall out as it were? only time will tell but there are lots of opinions out there, some pro the regulation, some not so much.
No one knows for sure but here's what's being bandied about -
- Merchants - will set minimum purchase amounts for consumers to use cards, may offer cash discounts or charge a surcharge to use a credit card (that's gonna hurt), and will see lower processing costs for debit cards if the Fed's say current rates are too high. Will savings be passed along to the consumer/buyer - most guess no.
- Banks - have billions in revenue at stake that may be lost. If this happens chances are consumers will see an uptick in other fees - checking accounts, annual credit and even debit card fees, etc. Rewards programs could be eliminated. Banks are not non-profit entitys - if they lose money in one area - they will look to create it in others. The consumer will pay the price.
- Buyers/Consumers - may lose the ability to make low end purchases with a debit card (under $10? under $20?), will see an increase in overall banking fees, credit could get tighter if banks tighten reins because their capital base is squeezed, more limited payment options.
- Community Banks and Credit Unions - not included in the regulation if revenues are under $10 billion, were not pro its passage. They worry that merchants will find a way to not accept their cards at the POS because of the higher interchange costs and they will not be competitive in issuing debit cards - may lose customers.
Most surmise that the only group that will benefit of course, are merchants, whose cost of accepting debit cards will likely go down. We'll see.
In the meantime, we are in agreement with a recent June article by Kate Fitzgerald in ISO & Agent Weekly - an industry rag - where she quotes a report by the Mercator Advisory Group -
"The amendment "appears to largely view debit payments as though they were a 'public utility,' failing to recognize the substantial innovations and competition occurring in this area surrounding fraud and security needs, risk assessment, timely settlement, guaranteed payment, and other social benefits." Interchange represents the cost of a business to business transaction in an remarkably competitive market with rapid innovation. Who should determine this cost? Who determines your cost of goods? your services?
Whatever happens, we'll let you know....keep an eye on that bank account - associated costs may grow next year, and for gosh sakes carry cash... in some instances, it may become your only payment option. One step forward, two steps back?