Changes in laws related to debit card transactions lead to a lawsuit against the Federal Reserve. This lawsuit was the efforts of several coalitions to protect merchants. The claim reflected the failure of the government agency to comply with this new federal law.
To understand fully the origins of the law and lawsuit it generated, start by answering the question, “WHAT IS THE DURBIN AMENDMENT?”
Why was the Durbin Amendment Passed?
The Durbin Amendment was passed as a strategy to stop the Federal Reserve from imposes hefty fees on merchants for accepting debit card payments. Prior to the passage of the law, banks imposed fees that equate to at least forty-four cents per dollar accepted during a given transaction. This made it not feasible for any merchants or retailers to accept debit card payments as they lost profits due to processing fees.
How Did the Amendment Affect Consumers Negatively?
Banks and credit unions restricted incentives for using debit cards. These perks included but were not limited to free checking, cash back for transactions, and bonuses. Consumers suffered the impact of excessive fees for using their debit card, acquiring associated checking accounts, and checking their balance online.
Were There More Changes Caused by the Amendment?
Yes, instead of providing more incentives for using debit cards, these banks introduced new incentives packages for using credit cards. These incentive plans allow consumers to acquire discounts and cash back for using their credit cards more often. Larger purchases are rewarded with higher points that produce discounts and bonus cash. This strategy increases the profits of these banks due to finance fees associated with using the credit cards for these purchases. Ultimately, instead of saving money, the consumers are incurring higher credit card debt and spending more in related fees than gaining true benefits.
What are the Effects on Merchants?
The merchants are now facing further surcharges for accepting debit card transactions. Any retailers that accept smaller transactions see larger fees than profits. For this reason, more retailers and merchants are charging their own fees for these transactions to offset the loss generated by the fees imposed by the amendment. This newer legislation also blocked access for merchants to acquire free business checking accounts. This, in turn, generated higher overhead costs for processing their incoming payments from consumers.
What is the Merchants Payments Coalition?
This is an organization that took on the Federal Reserve to fight the implementation of the amendment. They expressed their concern for the fairness of the legislature in terms of treating merchants fairly by reducing applicable fees. Their claim implied that the new Federal Reserve ruling should require banks to take steps to prevent fraud instead of charging fees. These fees were changed as a tactic to reduce fraud when the truth was that they were just a ploy to generate higher profits for the banks.
These fees were changed as a tactic to reduce fraud when the truth was that they were just a ploy to generate higher profits for the banks. The strategies suggested by the MPC were to require consumers to use a PIN when completing debit card transactions instead of signing a receipt. The Federal Reserve opposed this viewpoint and insisted that the fees were the most feasible strategy for fraud reduction.
The question, “WHAT IS THE DURBIN AMENDMENT?’ is answered through a series of events intended to protect merchants from inflated fees. These fees lowered their profits and generated higher capital for the banking industry. To learn more about the amendment read more here.