A closer look at the "Durbin Amendment" debit card interchange rule

On May 26, 2011 Moneycation posted an entry about the Debit Card Rule. On May 14, 2011 the 'Durbin rule', named after the Senator from Illinois passed the Senate as a provision within the Dodd-Frank Wall Street Reform and Consumer Protection Act according to the Washington Post. It is to be implemented by the Federal Reserve Bank.

An interesting piece of information about this rule is if a bank or credit union has assets under $10 billion, they are exempt from the rule which places restrictions on fees charged during retail debt card transactions. What previously cost merchants 1.5 percent in 'interchange fees' i.e. debit card transaction costs could now only cost .12 cents per transaction

Despite the exemption, the rule was still challenged which raises an eyebrow. Why challenge something if there is an exemption? A closer look at the rule shows the exemption may be unenforceable due to a mandatory choice of transaction networks according to Nerd Wallet. In other words, if there is a choice between an exempt network and a cheaper one, merchants can choose the latter depriving banks or credit unions of transaction fees.

Essentially, if merchants will in fact have a choice of networks, credit unions and banks are concerned they will not earn enough to prevent fraud due to a lack of financing. Since its original approval a delay on the implementation of the Durbin Amendment has been forgone. The result consumers may face include potential banking fees for services that were previously free, minimum card purchase requirements or surcharges.

If fees are implemented on individual banking accounts a return to cash transactions or alternate payment methods may bypass debit card minimum purchase rules and possibly even checking account fees. Consumers are capable of lowering their expenses as well which makes the interchange fee change seem more like a mere re-shuffling of costs in favor of retailers.