In today’s less than stable economy, money is on everyone’s mind and in the last couple of years the Durbin Amendment has gone hand in hand with money talks around the nation, especially if you’re in banking or a customer tired of the high EDT (electronic debit transaction) fees charged by banks. The Durbin Amendment was a down to the wire addition on the Dodd-Frank Wall Street Reform and Consumer Protection act of 2010. It was signed into law, by President Obama, July 21, 2010 and became effective October 1, 2011. Since its inception, the Amendment has been a subject of great debate.
The Durbin Amendment was opposed by banks because it was put in place specifically to keep banks from taking advantage of their members. The Durbin Amendment puts a limit to the amount of fees that can be charged for debit transactions. The fee has to coincide proportionally to the cost paid by the debit card issuer for their service. This was great news for businesses and individuals. If banks had hiked prices on EDTs as they intended, it would have forced businesses to make up their own losses through increasing prices of products and services offered to consumers. These higher prices would have raised the cost of living and further hurt the middle and lower classes.
The fee charged by banks and credit unions is meant to cover the risk of fraud, overhead, and transaction costs. However, because of the little negotiating power held by merchants, the fee has become a huge source of profit for any banking institution offering checking accounts. This high fee is what leads to banking rewards between competing financial institutions and if the Durbin Amendment drops fees, it would move the profit margin from debit card issuers to the merchant. This transfer of wealth will most likely lead to a loss of the free services and rewards enjoyed at your local bank. Durbin Amendment supporters suggest consumers will reap the benefit via lower product costs.
Additional changes made with the Durbin Act include merchants being able to impose a $10 minimum on credit card transactions which can be adjusted at any time by the Federal government. Until this change, Visa and MasterCard had banned this practice on merchant agreements. Merchants can also give discounts at the register to those who pay with cash or debit cards which had also, previously, been banned by Visa and MasterCard. Although the Durbin Act has been hotly contested from those who stand to lose the most profit, it shows signs of being just what an economically unstable society needs.