Durbin is a Done Deal
June 9, 2011
Yesterday the U.S. Senate voted down a bill that would have delayed the implementation of the Durbin Amendment set to go into effect on July 21st. The Durbin Amendment is part of the Dodd Frank Wall Street Reform Act of 2010 and mandates the Federal Reserve to regulate the interchange rate of bank debit card transactions. This is truly historic. Durbin has survived both its legal and legislative challenges, and unless someone finds an angle fast, the cost of processing most debit card transactions for merchants is going down dramatically. That’s good news for you.
The short and sweet (yes it’s sweet) of Durbin is that the Federal Reserve has proposed capping debit card interchange fees – both swipe and PIN – at around 12 cents per transaction. Currently, most merchants are paying 1-2% with an average fee of $.44 per transaction. In Higher Education, however, the change from percents to cents is especially important because of the large transaction size associated with tuition payments. The impact on a $1,000 tuition payment could go from $10 to just pennies, approaching the low cost structure of ACH payments. I do expect some adjustments to the 12 cent cap to compensate debit card issuers for fraud and the systems to reduce it. As long as it stays in cents and not percents, then Higher Education is a big winner.
There are a couple of important twists to understand. First, the Fed is charged with regulating debit interchange rates, but merchants don’t pay interchange – they pay discount fees that include more than interchange. As a merchant, you may not automatically get the reduction without talking with your merchant services provider. Second, there is an exemption in the Durbin Amendment that excludes banks with under $10 billion in assets – small banks and credit unions. It will be interesting to see how a “2 tier” pricing system works out.
To find out more about this big change in motion for our payment systems, click on any of the following links and stay tuned for more good news.
Durbin’s Consumer Protection Agenda
Federal Reserve Press Release on Interchange
Toughey Talks – “Debit Gets Dinged”
Toughey Talks – “Special Update”
Thanks for reading.