What is the Durbin Amendment?
The Durbin Amendment limits the fees, known as "interchange", that an issuing bank can charge a merchant when a customer uses a debit card. The amendment was passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Important to note: The Durbin Amendment only applied to banks with over 50 billion in assets. The smaller banks and credit unions would not be affected so their fees would stay the same. The bill was passed at the time of the big housing crisis and the big banks had few friends in Washington, or anywhere.
Pin Numbers lower processing fees
In early 2003, Advantage Card Services started in the Credit Card processing industry. At that time, PIN numbers were just starting to be introduced to retail businesses across the United States. Up until then, PIN numbers were mainly used at ATM machines.
Using a PIN number is called "On-Line" debit because it can check and make sure funds are available in your account, in real time, before approving the sale. WHAT A BREAKTHROUGH!
PIN transactions are processed by "Debit Networks" like Shazam, Cirrus, Plus, etc. and not the credit card networks like Visa, Mastercard, etc. Since the risk was much lower, the debit networks could charge less than the credit card networks. This made it very attractive to merchants, and the industry proceeded to update every retail business across the country to machines with pin pads so they could take the On-Line debit cards.
While this change made some difference, business owners still felt that the rates were too high for the low risk of debit cards. Regardless of pin numbers or not.
Merchants React
OK, so everything's moving along, and merchants who take pin numbers are saving some money. However, this only applies to Card Present transactions where the cardholder actually enters the PIN and doesn't bypass it.
Overall, the impact isn't that great for a lot of businesses and merchants continue to complain about the high debit card fees. Merchants feel that debit card transactions, whether offline or online, are basically checks and the fees should be a lot less, regardless of Pin or No Pin. They feel that even keyed in vs chip read shouldn't vary so much.
So in 2010, merchants lobbied congress and legislation was passed called the Dodd-Frank law This represents a major time the the U.S. government stepped in to regulate the payment processing industry.
What Did the Durbin Amendment Do?
As stated above , the Durbin Amendment limits the transaction fees or "Interchange" that an issuing bank can charge a merchant when a customer uses a debit card.
This bill was a major change!
Overnight, the fees dropped from approx. 1.1% and $0.15 per transaction on swiped, off-line (no PIN) debit cards to .05% and $0.22 per transaction! If that's not enough, the rate applied to ALL debit cards, regardless of PIN or No PIN and regardless of whether they were keyed or swiped!
The banks also lost billions of dollars in revenue practically overnight. A lot of people remember how everything in banking changed, from fees to rewards, as the banks restructured to handle the lost revenue back then.
This price shift was HUGE! But not for all.
Cost Plus pricing didn't really exist back then for the average business and processing fees were set up in a 2 or three tiers. These are Fixed Percent or Flat Rate programs and the processors have to make sure the flat rates they charged were high enough to always cover the wholesale costs, plus a little profit, no matter what card the business takes.
Once Durbin passed, the percent dropped approximately 1% but the transaction fee went up by 7 cents. So, if you were a coffee shop selling $5.00 items, then the .07 increase per transaction was a death sentence to the processors profits and many had to raise their rates for these businesses.
Consequently, If you had tickets over $10.00 then the processors were making exponentially more money the higher your sales were. Unfortunately, this only helped the business if the processor passed on the savings and either lowered their rates or changed them to a Cost Plus program. As you can guess, most processors didn't want to give the extra profit back to the businesses, so, for the most part, competition drove the change to Cost Plus.
I am willing to wager that there are a lot of old, tiered plans still out there. If so, you have been paying way to much for way too long.