Durbin Hits, Fight Escalates

Retailers may have won the right to debit fee caps for now, but banks are raising fees and pointing the finger at merchants, while some lawmakers look to repeal the interchange caps.

By Erin Rigik, Associate Editor.

The long awaited Durbin Amendment went into effect on Oct. 1, capping interchange fees well above the 7-12 cents originally expected prior to the Federal Reserve’s final ruling. Still, retailers barely had a chance to exhale in relief before new bank fees were announced for merchants and customers, causing a firestorm of response on all sides, from lawmakers attempting to repeal swipe fee caps to antitrust allegations against card companies, and customer backlash directed toward big banks exploding across the nation, leaving banks to point the finger back at merchants once again.
In other words, the battle has only just begun.

Under Fed regulations interchange fees on debit card purchases are now being capped at no more than 21 cents per transaction, plus 0.05% of the purchase price and, in most cases, an extra one cent for fraud prevention.

While the cap brings retailers relief on most purchases, fees could actually rise on small-ticket purchases. The cap amounts to 27 cents on a $100 transaction, or about one-sixth the $1.50 collected under the former fee schedule. But the cap comes to 22 cents on a $2 soda or cup of coffee, according to the National Retail Federation (NRF).

Banks Hit Back
Despite the fact that the caps were much less drastic than expected, the banking and card industries are fighting back. Visa plans to introduce a network participation fee in the U.S. for all of its debit, credit and prepaid card services, which will be based on a merchant’s size and number of locations.

“What has been bandied about is a low four figure fee annually for the right of accepting Visa cards,” said Gray Taylor, PCATS executive director. He noted merchants will have no choice but to pay the fees, which will end up passed onto consumers. “Visa has market power and the ability to get whatever fee they want and is the only business I know that can unilaterally decide what their top line is going to be.”

Meanwhile, Bank of America (BOA) is hitting up its customers to regain the $2 billion in revenue annually it expects to lose due to the new caps. It announced in October that in 2012 it plans to charge customers a $5 monthly fee for making debit card purchases. And Bank of America is not alone. Wells Fargo & Co. is charging a $3 fee for debit and ATM cards in several states under a pilot program, and J.P. Morgan Chase & Co. has been testing a fee in a small market in Wisconsin since February. Regions Financial Corp. and SunTrust Banks Inc. have also added monthly debit card fees.

Customer sympathy for banks is at an all-time low and the fees have escalated public outrage at corporate greed and have helped fuel the Occupy Wall Street protests that at presstime were growing across the country.

Shortly after BOA’s announcement, a number of anti-Bank of America Facebook pages sprang up, customers sounded off on Twitter vowing to take their funds elsewhere, and a Bank Transfer Day Facebook page quickly gained 13,000 fans as it encouraged BOA customers to respond by switching to a bank not charging fees on Nov. 5.

“The viral buzz surrounding the backlash to the BOA announcement speaks for itself,” Lyle Beckwith, senior vice president government relations for NACS told CSD. “Small banks and credit unions are already calling this a win for them.”

In a letter to his constituents, Sen. Richard Durbin (D-Ill.) wrote: “Now is the moment for smaller banks and credit unions to make crystal clear to these consumers the superior benefits and customer service that your institutions provide compared to the Wall Street giants. I strongly urge your institutions to seize this competitive opportunity, as this will serve both consumers’ best interests and your own.”

Under the Durbin Amendment banks that do under $10 billion in business have a 35% price advantage over their largest competitors. “This is a windfall for the small banks,” Taylor said. But he cautioned that retailers need to stay vigilant as the big banks try to spin the conversation to put the heat back on merchants. “The big banks are going to come out and howl about this thing and tell customers if you’re upset about the new fees, blame the merchants. We’ve seen this all before.”

Round Two
As customers take their fight to the streets, businesses and lawmakers are fighting the battle in the courts and in Congress all over again.
Two U.S. House Representatives— Jason Chaffetz, a Utah Republican, and Bill Owens, a New York Democrat—introduced a measure in October to repeal the swipe fee caps required under the 2010 Dodd-Frank Act.

“Anytime anybody in Washington drops a bill, if you’re not worried about it and you don’t pay attention they have a habit of sliding through, so I can tell you from NACS’ perspective they’re taking this proposal very seriously and retailers need to take it seriously,” Taylor said. “The bank lobby last year spent millions of dollars on the Hill. When it came to the Tester Amendment, the last time someone tried to reverse the Durbin Amendment, they outspent us probably 50 to one and didn’t win, but they have enough money to keep coming back. You never know how Congress will react and we have huge turnovers coming up in Congress, so retailers need to be concerned about all of these things.”

Meanwhile, responding to the growing outrage over new debit card fees charged by big banks, U.S. Rep. Brad Miller (D-N.C.) introduced The Freedom and Mobility in Banking Act aimed at modernizing and streamlining the opening and closing of personal checking and savings accounts, so customers can move their funds elsewhere more easily if they so choose.

Chief Deputy Whip Peter Welch (D-Vt.) and House colleagues also took action by asking Attorney General Eric Holder to investigate whether big banks are coordinating their fee strategies in violation of federal antitrust laws. “It appears that banks are seeking to justify fee increases after Congress and the Federal Reserve Board recently limited banks’ ability to collude with networks to set debit interchange fees,” Welch and his colleagues wrote in a letter to Holder. “Statements made by individual banks and their trade associations raise questions about whether some price increases that have occurred this year have actually been coordinated.”

The National ATM Council, a group representing operators of automated teller machines (ATMs), also joined the antitrust fight, firing back against Visa and MasterCard in a lawsuit accusing the credit and debit card issuers of violating antitrust laws by fixing the price of ATM access fees.

As for NACS, the organization is turning its attention to the next fight: credit card fees. “The Merchants Payments Coalition is hard at work developing our strategy to aggressively go after credit cards,” Beckwith said. But that doesn’t mean the industry is turning its back on the debit card battle.

“We’re not going to take the Fed (ruling) standing down,” Taylor vowed. “We had a significant win with Durbin and, as we’ve learned everyday since, someone is always trying to take it away from us. It’s going to be a big fight for the next 5-7 years. This is
definitely not over.”




  1. It seems like every day someone is “discovering” another unintended side effect of the limit that the Federal Reserve placed on debit card transaction fees, which took effect in October.  The thing about all these unexpected side effects is that they were all both predictable and described in some detail on our blog and elsewhere long before the interchange limit was enforced.

    No one who was paying attention and had actually bothered to look into the numbers should be surprised. The type of situation we have here is strikingly similar to, although not quite as potentially disastrous as, the European crisis in that in both cases politicians and their advisors were cheerfully ignoring the experts’ early warnings only to later declare, when it turned out that the experts had been right all along, that everyone was surprised with how events were unfolding.  http://blog.unibulmerchantservices.com/another-durbin-amendment-side-effect-gets-the-limelight

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