How the Durbin Amendment might Affect Consumers

Essentially, the Durbin Amendment seeks to limit the “swipe fees” that banks get whenever consumers use their debit cards to buy something. Because there have been only two providers of payment services, Visa and Mastercard, the Federal Reserve says, banks have been able to over- charge merchants freely.

To fix the situation, the Fed has mandated lower fees, of 21 cents per transaction plus .05 percent, to begin in October, 2011. These fees are not as low as some had hoped for, but they do nearly cut the previous processing fees in half.

The Federal Reserve will also require that there be competition among debit card payment network providers for merchant business. Each merchant will have a choice between at least two networks that process debit cards and a chance to shop for lower fees. These fees are an added cost of doing business for merchants, and therefore they must charge everyone, including those who pay cash, a higher price.

Banks say the fees fund fraud protection, and that they will have to cut back services and perhaps cap transaction amounts on debit cards if fees do not support their programs. According to, limits on debit cards could mean that consumers would have to switch to credit cards for large purchases like airplane tickets and perhaps groceries. Credit cards make banks more money.

Merchants say that they will pass some of their savings from the lowered swipe fees on to consumers. Retailers are in competition with one another, and one way to compete is with lower prices, so it seems likely that one amendment effect is that consumers will actually get a price break at some stores.

Stores will also be allowed to refuse transactions under ten dollars, and to offer discounts for cash. Previously, agreements with the payment networks had forbidden these actions. Most retailers may still be unwilling to complicate their price structure or possibly alienate customers by using either option. Merchants do seem likely to profit most from Durbin, though.

On the other hand, banks may well raise other fees to make up for lost swipe income. Credit unions may still be a better alternative for many consumers, but they too may need to raise some fees or decrease certain services. Possibly, credit unions and smaller banks will gain customers in a backlash against the money center banks as the fees are made public. This amendment effect might result in better consumer service.

The Federal Reserve itself seems unsure whether the Durbin Amendment will help or hurt users of debit cards.

Consumers like the safety and convenience of debit cards. They do make shopping more expensive, and always have. However, for most consumers they are worth it, especially with the new lower fees.