The Durbin Amendment: What It Is, What It Means For Merchants

Between the raging debates, lobbying, legislation, and (finally) the Federal Reserve analysis and modification of the legislation, the Durbin Amendment has maintained a place in the news throughout the year. Now that the debates are over, and both sides have said their piece about the outcome (which seemed to leave all parties underwhelmed and frustrated), it is time to dig into the new rules and determine what effect, if any, it will have on you.
As there is much to this topic, and many things you should consider, we will break our analysis and suggestions into three articles to be published in this newsletter over the next few months.

What is the Durbin Amendment?
Let’s start with a brief overview for those of you who may not have been following the news. The Durbin Amendment (an addition to the Dodd-Frank Wall Street Reform and Consumer Protection Act) was primarily written by, and named for, Senator Dick Durbin of Illinois. The legislation has two main points that we are concerned with.

First, it requires all banks with assets of more than $10 billion to charge debit fees that are “reasonable and proportional to the actual cost” of processing the transaction. (In layman’s terms it requires them to stop charging huge markups on debit transactions.)

Second, the Durbin Amendment gives the Federal Reserve the power to regulate debit card interchange fees. On June 29, 2011, the Fed set this interchange fee at 21 cents plus .05% of the transaction value. Issuing banks may charge an additional cent under the legislation if they implement a set of fraud-prevention measures. These new rates will take effect on October 1, 2011. Under the current system, given an average debit transaction of $38, interchange would be approximately 44 cents. Under the new regulations it will be capped at 24 cents – a savings of nearly 50%, much of which will (hopefully) be passed on to business owners.

What does it mean for merchants?
Well, for merchants lucky enough to use debit (and smart enough to only work with MSPs and Issuers who are passing along these savings) it means a nearly 50% reduction in processing fees for debit transactions.
If you are a merchant whose business type allows for debit, and are not currently using a PIN debit solution, now is the time to reconsider. This legislation will make the vast majority of transactions substantially more cost effective (and therefore more profitable if processed as debit instead of credit).

Yes, we understand debit can be difficult to implement, but now more than ever it pays off. If you’re interested in adding PIN debit service to your business, give us a call or send an e-mail to myaccount@shift4.com. We will help you determine if debit is a good fit for you, determine if it’s supported by your POS provider (and if it isn’t we’ll help you encourage them to add the integration or help you find a new provider), and get you set up to enjoy the new, lower rates that will only be available to PIN debit merchants come October.