The July 2010 Restoring American Financial Stability Act or Dodd-Frank bill as it is often referred to finally implements new regulations on October 1 of this year regarding it's heavily debated Durbin Amendment. The amendment gave the Federal Reserve Board the power to set "reasonable" debit card interchange rates and give merchants a choice in selecting the transaction network (routing regulations will go into affect April 2012, some even later).
The initial recommendation was to have debit card interchange capped at 12 cents per transaction - but to the outrage of amendment supporters - the final cap was set at 21 cents per transaction plus 5 basis points of the total transaction value (.05%). The cap represents huge revenue losses for debit card issuers, i.e. banks (those with less than 10 billion in assets are exempt from the regulations further complicating the overall financial services impact).
Who among us are the winners and losers as the bill goes "live"?
Merchants - The largest of retailers are going to save big with already negotiated interchange cost plus pricing that streamlines electronic payment costs, as much as 50% over current debit card interchange costs. Thelarger precentage of merchants and retailers striving to turn a profit in our distressed economy will likely see no reduction in payment fees despite the Durbin Amendment because of their pricing structure. These same merchants will take the brunt of lost debit rewards and free business checking programs.
Banks - Will survive, at least the big ones. Most have new strategies, products and fee structures to replace lost revenues ready to roll out if they have not already done so.
Consumers - Not good. The banks survival strategy will directly and negatively impact consumer wallets. The biggest Durbin Amendment supporters such as the Merchants Payment Coalition point to the consumer as a big winner through lower costs for products and services. This would be great, but doubtful. Similar regulation in other countries show savings go to the merchant with no peter down affect.
What we will feel is the elimination of debit rewards programs and most certainly free checking. Banks may charge annual fees for debit cards and/or charge a monthly flat fee for so many transactions or perhaps for using the debit card in a "purchase" environment vs ATM. Most of these notices from the major banks have already gone out. My sons SunTrust account will even charge a monthly flat fee for debit cards for the poor lowly college student when used for purchases.
David John of the Heritage Foundation in his 2011 March article,The Durbin Debit Card Interchange Fee Hurts Consumers makes some powerful observations. Some consumers, frustrated with new debit card fees will return to credit cards that have interest charges and even higher fees or even less consumer friendly, store-value cards. Lower and moderate income families could find it easier to to fall into the destructive cycle of debt. Interest paid on consumer deposits may drop further as banks attempt to stem revenue losses. Credit will tighten. Again.
In John's call to repeal the legislation he points to the positives of millions of American consumers who have moved consistently from credit to debit card use - spending their own money verses borrowing it from the card issuer. Keep in mind that debit cards are the fastest growing way to pay when it comes to non cash. According to the 2010 Federal Reserve Payments Study US consumers made 37.9 billiion payments using debit cards in 2009, up 14.8 percent from 2006.
XBS Global is a merchant account provider, a merchant and of course, a consumer.
Our business model is to assist merchants in payment optimization and provide ongoing professional and trustworthy consultation in a complex financial industry. In this we firmly stand behind efforts to lower electronic payments fees for all merchants.
As a merchant, we aim for best business practices, keeping ALL costs as low as possible and fully incorporate customary and standard expenses into the long term business plan and model. This includes payment processing costs.
Congress is way out of its league with this Amendment and we echo John's concerns - "Any law or regulation that artificially increases the cost to consumers of using their own money and directs them toward greater uses of debt or riskier debit card substitutes is inherently anti-consumer".