What is the cost of The Durbin Amendment?

By: Staci Baker

The Durbin Amendment, according to Wikipedia, gave the Federal Reserve the power to regulate debit card interchange fees. The amendment, which will have a profound impact on banks, merchants and anyone who holds a debit card will take effect on October 1, 2011 rather than the originally announced July 21, 2011, which will allow banks additional time to implement the new regulations.

The Durbin Amendment states that card networks, such as Visa and Mastercard, will include an interchange fee of 21 cents per transaction, and must allow debit cards to be processed on at least two independent networks. This will cost banks roughly $9.4 billion annually according to CardHub.com. As stipulated in the Amendment, institutions with less than $10 billion in assets are exempt from the cap.

In preparation for the Durbin Amendment, several banks have begun to impose new fees on checking accounts, end reward programs, raise minimum balance requirements and have threatened to cap transaction amounts for debit card transactions at $50 to $100 in order to recoup some of the earnings they are expected to lose. These new regulations will be a blow to already hurting consumers as their out of wallet expenses keep increasing.

As you can see, The Durbin Amendment, which is meant to help consumers, will instead have the cost from the loss of interchange fees passed along in other forms. And, the loss of revenue will greatly impact the bottom line of banking institutions. Who will be the bigger winner with this new amendment – the consumer, merchants or the banks? Will banks be able to lower the cost of credit to an amount that will entice consumers away from their debit cards and to use their credit cards again? I think it is still far too soon to tell. But, I think over the next few months, we will see consumers use payment methods in a new way as both consumers and banks come to a middle ground that will minimize risk levels for all parties. Consumers will still need to shop and bankers will still need their tools utilized.

What are you doing to prepare for The Durbin Amendment?