Current Events
What is the Durbin Amendment?
It's a proposal from Illinois Senator Dick Durbin that was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The provisions of the Durbin Amendment become law on Oct. 1, 2011. The new law will reduce, by nearly 50%, the average amount that retailers pay for debit card transactions (often called interchange fees or swipe fees).
Retail businesses have been paying banks an average of 44 cents every time a debit card transaction goes through. Effective Oct. 1, the Federal Reserve will limit the transaction fee to no more than 21 cents, plus 0.05% of the transaction (2 cents average), plus 1 cent for issuers that have fraud-prevention standards in place. This hasn't affected credit cards; banks have been getting, and will continue to get, almost 2% of each transaction price.
Why anyone besides Senator Durbin should care
Well, since the new law cuts debit card fees in half, banks are going to be earning considerably less from debit card transactions. To make up the shortfall, they appear to be following two main strategies:
1) Lob fees onto the consumer to make up for the shrinking of debit card revenue
2) Offer more rewards and perks on credit cards to make them more attractive and to increase credit card revenue
Banks are now likely to find credit cards much more profitable under the new law, due to that aforementioned 2% of the purchase price per transaction. For purchases over $10.50, on average, the credit card issuer will make more in fees if you use a credit card instead of a debit card.
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