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The Durbin Amendment Explained

The amendment is part of the Dodd-Frank law, which slashed the fees stores had to pay banks when customers used debit cards. The rule was intended to save consumers money, but they paid big in increased bank fees.
The Durbin Amendment Explained Story
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Every time you swipe your debit card, the Durbin amendment comes into play. The 2010 Durbin rules, originally meant to save consumers money, instead cost consumers an estimated $8 billion in bank fees the first two years after it went into effect, according to the Federal Reserve.

The Durbin amendment is part of the 2010 Dodd-Frank law, which sharply lowered debit card interchange fees — charges that stores pay banks when a customer makes a purchase using debit cards. Supporters said the measure, sponsored by Sen. Dick Durbin, D-Ill., after whom it was named, would lower prices for consumers by cutting retailers’ costs.

The Durbin amendment was meant to cut costs for consumers: Reduce the amount retailers paid banks for customers who used debit cards, and they’d pass the savings on. But big banks lost billions — so they hiked fees and eliminated perks.

But when the rules took effect in 2011, big banks began looking for ways to recoup some of the lost revenue, which was estimated at $14 billion a year, according to a 2014 Federal Reserve paper. Consumers faced increased fees and a reduction in perks, such as debit card rewards programs and free checking accounts.

Opponents of the law, such as banks and credit unions, have said it has hurt consumers overall and hasn’t resulted in lower retail prices. A study funded by the International Center for Law and Economics at George Mason University (which has received financial support from Mastercard) found that retail prices didn’t drop after the law passed.

But advocates of the law, including retail trade groups such as the Merchant Payments Coalition and the Association for Convenience and Fuel Retailing, say prices did drop, and they have sought more swipe-fee changes. The amendment didn’t affect credit card interchange fees, for instance. The trade groups have made reducing credit card transaction fees a high priority, even as they push for further curbs on debit card costs.

How does the Durbin amendment affect me?

After the Durbin measure went into effect, fees on deposit accounts increased an average of 3% to 5%. The increases consumers faced included:

  • Monthly account maintenance charges (with higher minimum balance requirements to avoid the monthly charges)
  • Insufficient-funds fees
  • Inactivity fees

Banks also cut back on debit card rewards programs. Instead, banks added more rewards to credit cards, which weren’t covered by the Durbin amendment.

How can I lower my bank fees?

If your bank costs have increased, consider switching to a better checking account. The Durbin amendment exempts financial institutions with less than $10 billion in assets, which excludes most community banks and credit unions.

Many smaller institutions offer free checking, and some still provide rewards on debit card usage. You could also use a rewards credit card.

Many smaller institutions offer free checking, and some still provide rewards on debit card usage. Check out NerdWallet’s analysis of checking accounts that offer low fees and comparatively high interest rates.

You use could also a credit card for most of your purchases to take advantage of rewards options. See our list of the best rewards credit cards. This approach works best if you pay your balance in full every month. Otherwise, the interest you pay may negate the value of any rewards.

How are retailers affected?

Some retailers are paying less in debit card swipe fees. The maximum fees range from 21 cents to about 24 cents, depending on the size of the transaction and the bank issuing the card. Before the amendment, retailers paid an average of 44 cents for a typical debit card transaction, then valued at roughly $38. The Durbin rules meant that for that typical $38 purchase, the maximum fee would be about 24 cents, 45% less than the average cost before the law took effect.

After the rules took effect, Visa and Mastercard began charging the maximum amount for smaller transactions.

Merchants that regularly process smaller debit card purchases may have seen costs rise sharply. Before the amendment, many banks and card issuers based transaction fees on a variable percentage of the purchase value, so merchants paid smaller fees on smaller purchases and larger fees on larger purchases. But after the rules took effect, Visa and Mastercard began charging the maximum amount for smaller transactions. So, for example, instead of paying a 6-cent interchange fee for a $3.50 charge for coffee and a doughnut, a shop owner suddenly faced a fee of 21 cents for the same bill.

Merchants have fewer choices for free business checking accounts, as many banks eliminated them to help recoup revenue losses. According to the Fed paper, banks had recouped about a third of lost swipe fee revenue after two years.

In early 2017, there was talk of rolling back the Durbin amendment as part the Financial Choice Act, a larger effort to repeal Dodd-Frank.  But for now,  the amendment is in place. Knowing its effects on banks and rewards programs can help you make smart decisions about how to use your cards.

Updated Aug 30, 2017.