Merchant debit card fees, otherwise known as interchange fees, were capped as a result of the Durbin Amendment under the Dodd-Frank Financial Reform Act that was mandated by the Federal Government. With Durbin, the Federal Reserve capped debit card “swipe” fees at roughly 21 cents per transaction which is a far cry from the former amount – 44 cents per transaction, on average. The debit card fee caps took effect on October 1, and since then banks have been struggling to find ways to recoup some of their revenue losses resulting from the new regulations, which, by some estimates, stand to cost the banking industry some $6 million annually.
There was much lobbying by merchants on behalf of the debit card fee caps. They claimed that if the interchange fees were lessened they could then pass that savings along to consumers by way of reduced prices and specials. However that is not what has been happening. Many merchants claim that the federally mandated savings has not been trickling down from the card transaction processing companies and that many of those companies have in fact been raising their fees on other services, affording merchants no savings to pass along to the customer. In some cases merchants have been forced to raise prices not lower them.
This is because the response of Visa and MasterCard – the two largest card transaction payment processors in the country – to the Durbin Amendment was to eliminate all of the small-transaction discounts they were offering merchants. Initially, those discounts were extended in order to entice consumers into using their debit cards for small transactions.
As a result of Durbin, many business owners who operate stores where the bulk of their business is done in small increments – such as coffee shops – are now paying higher, not lower, debit card interchange fee rates whenever a customer uses a debit card to make a purchase for under $10.
Many merchants are now finding themselves faced with needing to make a decision how to offset the higher rates – raise prices, encourage cash payments or not allowing any card payments in the future.