People who have never heard of the Durbin Amendment don’t realize the impact that it has on them every time they engage in many kinds of financial transactions. As part of reform measures passed in 2010 and in effect since 2011, the Amendment focuses on the charges that financial institutions charge as part of the processing for most types of electronic transfers. Here is some information that will help consumers understand the intent as well as the result of those reforms.
What is the Durbin Amendment?
The Durbin Amendment is a provision found in the Dodd Frank Wall Street Reform and Consumer Protection Act that was introduced in 2010. The provision is named after United States Senator Richard J. Durbin of Illinois. Focused on the fees that retailers had to pay to banks in order to offer their customers the option of paying with a credit card, the idea was to place a maximum on the fees assessed on each transaction. When the Act went into effect in 2011, it did indeed impose limits on how much financial institutions could charge.
What Was the Intent?
The idea behind the amendment was to lower the costs associated with selling goods and services to consumers. By lowering the bank charges, more revenue remained in the hands of the business owner. That led to an expectation that the business owner would utilize those additional funds to grow their businesses, offer more benefits to their employees, and pass part of the savings on to their customers.
How Has the Amendment Impacted Business Owners?
At first glance the amendment did have the benefit of lowering bank charges and increasing the overall cost of doing business. As time went on, banks began to look for ways to compensate for the revenue that was lost when a cap was placed on the fees they could charge. Some business owners found that while they had initially reduced one business expense, they now had other costs associated with their bank accounts that were on the rise.
Small business owners found that they tended to pay more for certain consumer purchases. That was the result of some credit card providers instituting a minimum fee that applied to all charges under a certain amount. Prior to the implementation of the Act, those same purchases were subject to a fee based on a percentage of the total charge. Once those minimums were set, the fee associated with a charge of a few dollars was likely to be higher than it was prior to 2011.
What About Consumers?
Consumers have also seen changes in the fee schedules of their banks. Some attempts were made to make up the costs by implementing transaction fees when a customer used a bank debit card. Increases in fees like insufficient fund charges, the costs of using different ATM machines to withdraw cash, and even the assessment of so-called inactivity fees on accounts that were rarely used became more common. Another approach has been the reduction or elimination of cash back and other types of reward programs.
To this day, when the question of WHAT IS THE DURBIN AMENDMENT? arises, people will either hail it as a great move or condemn what has come to pass in recent years. Over time, there is likely to be more developments that result from the provisions found in the amendment and the other provisions in the Act.