The Federal Reserve today issued the final rules on the Durbin Amendment, and it's an ultimate win for retailers, although I predict some battles to come from the banking industry and consumers before the dust settles.
The Amendment, part of the sweeping Dodd-Frank financial overhaul legislation, allows the Federal Reserve to put limits on the interchange fees that merchants pay banks when you swipe your debit card at their cash registers.
Today, those fees are ranging between 1 percent and 2 percent of the amount you purchase and have added up to $16.2 billion that merchants paid in 2010. As of October 1, 2011, the planned effective date for the new rule, those fees will be a maximum of 21 cents plus 0.05 percent, nearly 48 percent lower than before for a typical transaction of $40.
Lower fees sound like a good thing, assuming the savings are passed on to consumers and assuming that the banks can still afford to run the networks that make debit cards work safely and reliably.
If they can't, consumers will see new fees tacked on to their bank debit cards and will respond by moving to lower fee alternatives. That, in turn, will prompt the banks to innovate their financial products while being mindful of not letting hidden fees get out of hand, for fear of sparking the regulatory backlash cycle all over again. And in the end, I predict consumers will gain fair, simpler, more transparent banking options, and retailers won't be left holding the bill. But it will take a few tries to get there.
For background on hidden interchange fees, read Why You Should Care About Hidden Interchange Fees in 2011
For the details of today's ruling, read the Fed memo posted by PYMNTS.com
Disclosure: I am CEO of Plastyc, a company that offers prepaid card services (prepaid cards are a sub-category of debit cards). My company is not directly affected by the proposed interchange rules, which only apply to prepaid card issuers with assets of $10 billion or more.