Durbin Amendment: What It Is, How It Works, Impact

What Is the Durbin Amendment?

The Durbin Amendment is a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that limits transaction fees imposed upon merchants by debit card issuers. The amendment, named after U.S. Senator Richard J. Durbin and introduced in 2010, proposed to restrict these interchange fees, which averaged 44 cents per transaction at the time of proposal. The Durbin Amendment reduced transaction fees to 21 cents plus 0.05% of the transaction value for banks with $10 billion or more in assets.

Understanding the Durbin Amendment

The amendment was proposed on the belief that interchange fees were not reasonable and proportional to card issuers' costs. When the bill became law in 2010, it capped interchange fees at 21 cents per transaction plus 0.05% of the transaction amount. Some banks implemented new fees and eliminated free services in an attempt to offset their interchange fee revenue losses.

The amendment also allows for covered banks to receive an adjustment for fraud prevention costs in the amount of one cent.

Impact on Commerce and Banking

There is some debate about the efficacy and impact the amendment has had on consumers, retailers, and banks. Those who have called for the amendment’s repeal have cited a circumstance where larger retailers have not passed on the intended savings to consumers and instead raised rates in other ways.

Some of the new fees introduced included high fees on deposit accounts, increased penalties for insufficient funds, and monthly maintenance charges for accounts that do not maintain a higher minimum balance than was previously required.

Such claims also assert that smaller retailers under the Durbin Amendment lost some of the pricing advantages they previously enjoyed compared with their larger rivals. Previously there was flexibility on interchange fees, which let some retailers enjoy discounts on certain lower cost items, which allowed them to retain more profits.

Banks have claimed that the cap on fees limits their ability to reinvest in themselves in other ways, such as offering free checking accounts as options to their customers. Debit card reward programs may have been eliminated as well by some banks.

While the amendment affected debit card usage, comparable fees on credit card purchases were not affected. This has led to increased rewards from some banks for credit card usage since they offer a better opportunity for the institution to make money.

There have been some efforts to introduce similar changes for all so-called swipe fees regardless of the type of card used in the transaction.

With the debate ongoing, there have been efforts in Congress to repeal the amendment, a campaign backed by smaller retailers and some community banks and credit unions.