How Well Has the Durbin Amendment Worked So Far?


How Well Has the Durbin Amendment Worked So Far?


As a shopper, when you swipe your debit card to make a purchase, the Durbin Amendment comes into play. Wondering what is the Durbin Amendment? A part of the Dodd-Frank financial reform legislation in 2010, the amendment was proposed to lower prices for consumers by cutting the debit card interchange fee that retailers are required to pay banks on the completion of a transaction by customers.

Unfortunately, following the amendment, banks started recouping the lost revenue by raising fee and cutting perks, which included debit card rewards programs.


Effect on Consumers

The amendment has failed to serve the purpose it was meant for and hurt customer interests, with no reduction in retail prices. Ever since the Durbin measure came into effect, consumers have to pay a higher fee on deposit accounts. Consumers are required to pay:

  • Inactivity fee
  • Fee for insufficient funds in account
  • Higher account maintenance charges per month

Apart from this, banks have limited debit card rewards programs and substituted with more rewards to credit cards.

So literally speaking, customers are paying $4billion annually following the enactment of the Durbin Amendment. The law has not only hurt customers, but also impaired small mom and pop stores while proving to be a blessing in disguise for big box retailers, who have had registered a significant improvement in their bottom line to the tune of $6 to $8 billion annually.

Related: Do You Really Know What Your Customers Want?


Data Speaks

Further, independent data demonstrates that community banks and credit unions, too, are suffering due to the legislation, since they are required to pay higher cost to comply with the amendment provisions. These small financial institutions that are vital for the growth of small business across America have seen a significant drop in the interchange revenue.

On the other hand, the failure of retailers to implement strong data security standards is also hurting consumers. Implementation of strong security standards is crucial to safeguard sensitive customer data. Seeing the rise in number of retail breaches, strong security standards become critical to protecting customer data on the retail side.

Related: Lessons from the Target Credit Card Data Breach.


Consumer Trust Issues

While three in four consumers trust the security standards laid down by the financial institutions, banks, and credit card companies, only 6% trust stores and retailers. The need of the hour is innovation in the field of payment technology to build consumer trust.

The evolution of stronger EMV chip cards is a step in that direction. Though most merchants are yet to accept these cards, those that have upgraded to EMV chip cards have started deriving the accruing benefits in the form of decline in counterfeit fraud. This has proved beneficial for merchants, customers, and financial institutions alike.

Related: EMV Capable Terminal – To Lease or Buy? Don’t Get Scammed!


Rise in Fraud?

However, there has been a significant rise in other type of fraudulent activity in the form of card-not-present fraud. Identity Theft Resource Center statistics are no less threatening either, reporting a “record setting pace” of big-box retailer data breaches, surpassing previous year’s records.

The Data Security Act of 2015 (H.R. 2205) lays down security standards to protect consumer information lying with retailers. Sadly retailers are yet to accept these standards, making false claims about the bill. Only if retailers could implement the measures, most of the recent data breaches could be prevented.

Related: Would EMV Chip Based Cards be More Secure with PIN?


Bottom Line

The Electronic Payments Coalition (EPC) urges Congress to pass the 2015 Data Security Act and speaks for protecting the value, security, convenience, and competition in the electronic payments system. EPC comprises payments industry stakeholders, including trade associations, banks, community banks, credit unions, and payment card networks.  It suggests strong customer data security standards to safeguard sensitive information.


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