Category Archives: Dodd-Frank and Debit Interchange Caps
Everyone in the industry knew this was coming…debit card usage fees, and the slow demise of free checking!
Starting October 1st, 2011 debit card interchange fees were capped by the Federal Government as a result of Section 1075 (Durbin amendment) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Banks will lose 45% of the $20.5 million paid by retailers to accept debit cards. To make up this loss in revenue, many banks like Bank of America are now charging customers a debit card usage fee. Bank of America charges it’s customers $5/month to use their debit card to make purchases.
There has been public outrage over Bank of America’s decision with bashing from the President to TV anchors cutting up their BofA debit cards on live television. Even some of our own merchants who benefit from the Durbin amendment are upset about debit card usage fees. They are consumers too!
Consumers are likely to quit using their debit cards to avoid the usage fee-will this cause an increase in check writing? I am thinking it might! There are many consumers who dislike using credit cards and prefer to make purchases straight from their checking accounts. Without the convenience of swiping a debit card retailers will most likely see an increase in check payments.
For more information on the Durbin amendment or to learn more about PaymentMax visit www.paymentmax.com
The Federal Reserve voted Wednesday to cap the fees paid by retailers for all debit card transactions. The debit card interchange cap is part of Section 1075 (Durbin Amendment) of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandated last year.
The new debit processing fees will be capped at 21 to 24 cents per transaction beginning October 1st. Down from 44 cents per transaction. The range in fees is due to the fee schedule having three components.
1. The maximum debit interchange fee is 21 cents.
2. The bank can add 1 cent more if they have adopted a fraud prevention program.
3. To recover a portion of fraud losses, banks can add a variable 5 basis points of the value of the transaction.
With the average debit card transaction being $38, the variable fee would equate to 2 cents. Placing the upper debit cap at 24 cents per transaction.
However, banks and retailers are not completely happy with the Feds decision. Banks stand to lose 45% of the $20.5 billion retailers paid to accept debit card transactions. Revenue that is used to provide consumers with free and low-cost banking services. Merchants are fuming that the new cap is much higher than the tentatively proposed 12 cent cap.
For more information on merchant accounts, or to have a rate quote visit www.paymentmax.com