Durbin’s Debit Debacle
The contenders have stepped in to the ring ready to throw some fierce combinations. Between politicians & coalitions the brawl over the implications of new debit card swipe fee regulations isn’t cooling down any time soon.
As part of a government crusade passed back in 2010 to protect consumers from the “Big Bad Bankers,” The Durbin Amendment (part of The Dodd–Frank Wall Street Reform and Consumer Protection Act) now restricts large banks to a 21-cent-per-transaction debit card swipe fee, plus a portion of the transaction amount. The new cap, down from the 44 cent average fee businesses were paying before, was intended to bring down the cost of debit transactions to merchants, with hopes the saving would be passed along to the consumers.
This is not the case. A major criticism of the Durbin Amendment implies that retailers are not passing along any kind of savings to consumers, but are enjoying a new and improved profit margin.
The Club for Growth, a conservative economic advocacy group argued this point loud and clear in a letter written to Congress on June 11, 2012.
“All you’re doing when you put in a price control is you’re forcing a company to pass on loss to the consumer in some way, “said communications director Barney Keller.
The letter to lawmakers continued their point by saying, “The solution here is not more regulation or political demagoguery. The solution is the free market. Let banks, merchants, and payment card networks work out interchange fees in a system of free and voluntary exchange.”
That’s not all. Before the new “helpful” cap was enforced, card processing networks which were responsible for setting debit card fees, offered businesses a rebate on fees for smaller transactions. Now with the cap in place, banks and card networks have taken a hit; convenient stores can say goodbye to discounted fees.
In an interview with USA Today, Ari Haseotes, president of Cumberland Farms (which operates almost 600 gas and convenience stores in 11 states across the Northeast and Florida) explained how it has impacted his business."A customer buying a can of soda on a debit card is costing me more today than it did before the legislation."
I guess it’s not all bad news, USA Today reported some gas stations, including Nice N Easy, Exxon and Arco stations are advertising lower prices for customers who pay with cash or a debit cards, as opposed to credit cards. Furniture store IKEA offers savings vouchers, good toward their next purchase, to customers who pay with debit cards. But doesn’t this mean customers are going to shop at these locations more frequently, making them even more money? Have the marketing gurus at these companies figured ways to profit even more from these caps? Genius.
Have you seen an impact on your business since the Durbin Amendment? Tell us your stories!!