The Durbin Amendment, an addendum found in the Dodd-Frank Wall Street Reform and Consumer Protection Act, was enacted in order to limit the interchange fee for debit card transactions. The average fee collected by banks per transaction was 44 cents, but upon implementation of the bill, that fee is capped at 12 cents per transaction. The purpose of the Durbin Amendment is to spur economic growth by increasing consumer spending. Theoretically, lower fees paid by retailers to financial institutions would allow the retailers to lower prices on the goods and services that they offer, thus passing the savings on to the consumer. Reality will prove to be just the opposite.
The Federal Reserve has reported that banks have collected nearly $16 billion each year from these fees, ostensibly to cover administrative costs, amongst other things. Banks are already anticipating up to a fifty percent loss in this revenue. But bank the people who run these financial institutions certainly are not going to simply sit back and smile as they watch their bottom line shrink. Certainly they will implement new ways to offset at least some of their losses.
Consumer rewards programs are already becoming a thing of the past. Many banks no longer offer points, miles, or other rewards to the consumer for using their product. Wells Fargo has ended its debit card rewards program. American Express did away with its membership rewards program. Countless other banks are sure to follow in suit. Some theorize that banks will even increase the minimum purchase price necessary to use a debit card. Banks could set a cap on purchases at $50 or more, thus forcing the consumer to pay with cash or a credit card. And of course, then the banks collect interest on that same amount that would have previously been debited.
The Durbin Amendment does limit its regulations to only those banks that have at least $10 billion in assets. However, its implementation will affect smaller banks as well. Even your local neighborhood bank will be forced to change their rules in order to keep up with market trends.
Ultimately, banks will find ways to record more of the record profits that we have seen over the last few years. The Durbin Amendment, touted as a measure to spur the economy and put more money in the consumer’s pocket, will do nothing of the sort. Banks continue to be largely unregulated. They have the ability to make their own rules, and will inevitably do so. In the end, those that lawmakers professed to protect will be the same ones who foot the bill – again.