Durbin Amendment
Durbin Amendment is an addendum to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The act is a major change to financial regulation in the country since recession.The Durbin amendment implements financial regulatory reform which lowered the debit card processing fees.In addition it enforces the law which insist Debit Card banks to provide better fraud prevention in their transaction processing.
The Durbin law focuses on debit card interchange and reform in the payment processing industry.
Traditionally Visa and MasterCard which contributes 80% of the market were charged 1-2% fees on Debit Card transactions which is $20 Billion per year in merchant interchange fees.They have imposed a system of fees and contractual restrictions on small business, merchants and government agencies who accepts their cards as a form of payment. These restrictions are designed to benefit the card networks and big card-issuing banks, and have been proved unfair to the small businesses, merchants, consumers and taxpayers.That is the reason behind the Durbin Amendment because these interchange fees are excessive in comparison to the actual cost of the Debit Card transaction. The law seeks credit and debit card networks to stop imposing penalties on small businesses, merchants and government agencies. The law applies to banks with over $10 billion in assets and restricts these large banks and credit card companies from using their dominant market power to force merchants to accept anti-competitive restrictions. Large credit card companies are no longer able to punish merchants for offering discounts to customers for using another card network; or discounts for using cash, check, debit card or gift card and loyalty cards; or set a minimum or maximum transaction amount for payment by card.
Durbin Amendment Highlights
- The amendment ensure that interchange fees charged for debit card transactions are reasonable and proportional to the costs incurred in processing the transaction.
- With this amendment, Visa and MasterCard will be prevented from continuing to increase debit card interchange fee rates, which currently amount to 1% – 2% of the transaction amount even though the actual cost of processing a debit transaction is far less.
- The amendment would direct the Fed to issue regulations to ensure that interchange fees imposed on debit card transactions be “reasonable and proportional” to the cost incurred in processing the transaction.
Benefits to Merchants
- The amendment says that sellers can do the following things without being threatened or punished by card networks like Visa and MasterCard
- Offer discounts to customers to use a competing card network
- Offer discounts for use of cash, check, debit card or stored-value card (current law does not fully ensure that merchants can offer these discounts).
- Set a minimum or maximum transaction amount for payment by card (small businesses lose money on transactions when they cannot set these amounts).