Lately I've been learning about the Durbin Amendment to last years Dodd-Frank Wall Street Reform and Consumer Protection Act. I've got my doubts that the bill really does much of either but the Durbin Amendment has stirred up a lot of controversy. Why am I learning this? Well, on behalf of the Southwest California Legislative Council, an advocacy group for businesses in our region, I will be testifying before Congress on Thursday regarding the impact this amendment has on small businesses. I'll be joining about 90 folks from around the country, primarily small business owners, in a series of meetings and press releases encouraging our Congressional leaders to stay the course on this and not buckle to the banking lobby. Yeah, that could work.
If you're not familiar with Durbin - in a nutshell it regards interchange fees or the so-called 'swipe fees' that get charged every time you pay for something with a credit or debit card. Currently this unregulated segment of the banking industry is a cash cow primarily for the two companies that control 80% of the market, Visa & Mastercard, and their 4 or 5 big issuing banks.The Durbin Amendment requires the Fed to 'establish standards for interchange fees that are reasonable and proportional to the cost of processing debit card transactions.' In addition, card networks like Visa & Mastercard, which set the fees for their issuing banks, will not be able to prevent retailers from encouraging the use of cheaper forms of payment through discount or minimum purchase requirements for credit cards.
Currently the swipe fees vary all over the board (there are over 200 categories designed to milk every last nickel from a transaction), but let's say they average 2% of a transaction plus around $0.29. The Fed has until next month to make their proposal official but in December they released a preliminary study showing that they believe the 'reasonable and supportable' fee would be around $0.12. TOTAL! That would equate to a reduction of about 73% for most merchant transactions - costs which are either borne by the merchant, passed along to all of us in the form of higher prices or some combination thereof.
As you might imagine, the banks are howling like raped apes about this. The end of the world as we know it! Chaos in the streets! Women and children rioting! The end of all kinds of freebies from your card issuer! New charges for checking, saving, breathing. It'll be a horrorshow! Hyperbole as only professionsl hyperbolists are capable.
And I'm sure there will be some repercussions. The banks will not take the potential loss of up to $50 billion a year in free money lieing (lying?) down.
But the fact is it's a burden on small businesses that have to remain competitive. It also costs jobs. The association I work for paid over $47,000 last year in credit card charges. And we can't just pass that along to our members. Realtor® fees are high enough and you're not making that much to begin with. But that's at least one full time employee that will not be hired and we're just small potatoes. You can only imagine the final cost to many retail establishments, restaurants or the grocery industry where profit margins are notoriously slim to begin with. It's your smaller local businesses that get hit the hardest with this regressive fee. Large retailers like Walmart pay the fees but are in a position to negotiate a much reduced swipe.
The bill passed last year with bi-partisan support over-riding the banking lobby. But with the implementation date getting closer and closer the banks have ratcheted up their attack and are running a full court press on Congress to defeat this amendment. But small businesses and our customers need this relief now. I don't know how this will turn out and it is making some strange bed fellows, but it sure feels good to root for the underdog.
If you have personal experience on what these fees cost you or your business, please pass them along - and if you'd like to read more...
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