Durbin Amendment Information Click here to apply for a merchant account.
Understand your merchant account pricing. Some
processors and/or acquirers will suggest that you change your
pricing to “Durbin-friendly” pricing to capitalize on the potential
savings . Before you change your plan, speak with a qualified UPC
merchant account representative. Not all pricing strategies are
appropriate for all merchants. UPC will give you interchange pricing
pass-thru which passes any savings directly to you.
Signature debit is no longer the optimum choice for debit
transactions. Signature debit transactions do not have a
choice of networks. The two network system only applies to PIN
debit. Be sure you are able to process PIN debit securely. Invest in
the right terminal equipment to be sure you reap all the benefits of
the new legislation.
Consumers will be watching. Merchants asked for
consumer support in streamlining and revising the debit card
interchange rules. With almost 50% savings for the merchant (down
from 44 cents per transaction), consumers will be watching to see if
they actually have the savings passed on to them. Use this
opportunity to invest in loyalty programs, lowering prices and make
wise cash discount decisions at the check-out counter.
Cash discounts for cash and debit cards. Merchants
can legally offer cash discounts for cash and debit card
transactions as well as credit card minimums. Be careful though,
consumer data from other countries that imposed debit card
regulations suggest that consumers will walk away from merchants who
make it difficult to use their debit cards and/or credit cards for
everyday purchases.
Real date for implementation is October 1, 2011. Although merchants
can begin to change their pricing strategies at the counter
beginning July 21, 2011, the industry has until October 1, 2011 to
implement the interchange rate caps, fraud prevention and access to
two unaffiliated card networks. Issuers must comply with the
two-tiered network provision by April 2012.
Durbin Amendment Background
The Durbin Amendment is Section 920 in the Dodd-Frank Wall Street
Reform and Consumer Act, which is part of the broader Financial
Regulation Reform and Consumer Act passed by the Senate in May 2010.
The Durbin Amendment was included in the Dodd-Frank bill by Senator Richard Durbin (D-Illinois). Among other things, it require the Federal Reserve to set ‘reasonable and proportional’ rates and fees for debit interchange rate.
On June 29, 2011, the Federal Reserve ruled on the Durbin Amendment. The effective date for most of the Durbin requirements was October 1, 2011.
Based on their ruling, the Federal Reserve capped transaction
fees for debit cards at 21 cents per transaction for large
institutions (greater than $10 billion in assets, also referred to
as regulated) with an additional allowance of 5 basis points (.05%)
of transaction value to account for fraud losses, and an additional
$.01 cent per transaction for fraud prevention (if certain fraud
prevention standards established by the Board are met). For the
average $38.00 debit card transaction, the interchange fees will be
around $.24, a decrease of about 45% from pre-Durbin rates.
The Durbin Amendment only regulates debit card interchange and debit
networks. Credit card rates are not discussed. The amendment is
rather complex. A few of the critical takeaways are:
- October 1, 2011 is the final deadline for implementation of most of the Durbin Amendment rules; specifically a two-tiered network option from VISA/MC and the interchange rate cap.
- A cap of 21 cents on debit card swipe fees, with a one cent charge per transactions for fraud prevention if issuers meet pre-determined provisions, and a .05% ad valorem fee for fraud losses based on transaction amount. See example above.
- The two-tiered network option for debit cards. This provision in theory will drive competition by giving merchants a choice as to which debit network they process transactions over. For example, present arrangements effectively force merchants to process many Visa transactions over the STAR network, even if competitors like PULSE and NYCE offer to conduct the same transaction at a lower processing price.
- Banks with less than $10 billion in assets are exempt from the Durbin Amendment regulations (also referred to as non-regulated or unregulated).
- July 21, 2011, merchants can impose a $10 minimum on credit card transaction and can offer cash discounts at the register for cash or debit purchases. This was previously banned in VISA® and Mastercard® merchant agreements. Remember, the Consumer Financial Protection Bureau is empowered on July 21st. They have the legal right to intercede on behalf of consumers who may question certain merchant practices, rates, product offers and related matters.