Interchange fee crawls off the mat, passes muster in Washington

Patrick Turiano |

July 9, 2011

Consumers get ready to feel the pinch.

On Wednesday the Senate voted to allow the Federal Reserve to limit the fees that stores pay banks each time a shopper swipes a debit card. That fee will be capped at 12 cents, far lower than the current 44 cents being charged. Known as the Durbin Amendment because it was introduced by Sen. Dick Durbin, D-Illinois, and then passed into law by the president last summer, this bill was lying on the Senate floor earlier this spring, gasping for its last breath.

While merchants see this as a victory, there are a number of unintended consequences consumers will face, such as saying goodbye to banking perks like free checking or paying “maintenance fees” on certain savings and other banking accounts as banks will be forced to find other avenues of revenue as this current source dries up. Some banks have already begun taking away those perks and implementing those fees. However, now that the Senate has allowed the change in Interchange fees to go into effect, the banks that were holding out hoping this would somehow be overturned, will join their brethren in creating additional revenue streams through mainenance fees. It is predicted banks could lose $15 billion in revenue.
On the flip side, merchants are hailing this as a victory and say they’ll pass the savings on to consumers, but we don’t see that happening, and in fact believe they’ll pocket those savings. This legislation immediately creates a revenue stream for merchants of any size, and the money they will now save will not be passed along to consumers.

Coming out on top of this legislation are Big Box retailers who will now realize billions in savings over the course of a year, due to the volume of these transactions. Consumers will certainly not see any savings passed on by the Targets, Home Depots and Wal-Marts of the world.

There was a glimmer of hope that the Senate would either request a period of debate on this legislation, thereby placing it on a proverbial back burner for upwards of two years, or killing it altogether, as it’s been argued that it’s bad for business in general. Back in April a letter sent by Fed Chairman Ben Bernanke to Congress stating that the Federal Reserve would not meet a late April deadline in which the Fed was to issue final regulations on debit card interchange, all but seemed to be the final nail in the coffin of the Durbin Amendment.

As we’re now finding out, it was in fact not the death knell and now the Federal Reserve is saying it will meet a July 2011 deadline to have rules and regulations in place so the interchange fee can be implemented.

We held out hope as well that cooler, calmer and wiser heads would prevail in this issue and that the Powers That Be in Washington would find a way to make this all go away, but they’ve done the opposite. We already have a feeling we know how this will play out and soon we’ll all be paying out more in additional fees to make up for this financial misfortune.