The Durbin Amendment

What Is The Durbin Amendment?

The Durbin Amendment limits the fees that debit card issuers can charge merchants.

Durbin Amendment Explained

Named for Senator Richard Durbin, the Durbin Amendment passed in 2010 and went into effect in 2011. It capped debit interchange fees for regulated issuers at 5% plus 21 cents per transaction. Prior to the amendment, interchange fees averaged 1% to 3% plus 44 cents per transaction.

Many merchants felt that these fees were unfairly high and that they didn’t accurately reflect issuers’ costs. They pointed out that debit card transactions are less risky than credit transactions.

Merchants had complaints about debit card fees for many years before the amendment passed. In 2003, Visa and Mastercard settled a class-action lawsuit regarding debit fees brought by Wal-Mart and other retailers. This suit directly influenced the Durbin Amendment.

As part of the settlement terms, the card brands agreed to pay a total of $3 billion to the parties who initiated the suit. They also agreed to reduce fees on debit card transactions.

The Durbin Amendment is one part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This act was initiated to prevent a repeat of the 2008 financial crisis.

The amendment’s limit on fees only applies to regulated issuers. This means that any issuing bank that has more than $10 billion in assets is subject to the amendment’s regulations. The payments that these issuers process are referred to as regulated debit transactions.

Unregulated debit transactions are processed by any issuer that has fewer than $10 billion in assets. These issuers do not have a cap on their fees. They can charge any amount they choose.

For merchants, accepting debit cards can be pricey. The Durbin Amendment offers some protection, but it doesn’t stop processors from marking up debit fees. If you’re a business owner, review your statement carefully and ask your processor what you’re paying for debit transactions.

Keeping an eye on your debit rates is especially important if you’re in a retail environment and accept PIN debit. Your exact fees depend on your contract, but PIN debit transactions may include additional fees.

Durbin Amendment Examples

The Durbin Amendment limits regulated debit transaction fees to 5% plus 21 cents per transaction.

• If you run a batch of 100 debit transactions of $10 each, your maximum fees would total $21.50. This total includes $0.50 for 5% of the transaction amount plus $0.21 times 100 transactions.
• If you run one debit transaction of $1,000, your maximum fees would total $50.21. This total includes $50 for 5% of the transaction amount plus $0.21 times one transaction.

Remember, the fee limit applies to issuers who have more than $10 billion in assets. If a customer’s card is issued by a smaller bank or credit union, there isn’t a cap on their fees.

The above amounts are just examples. Not all issuers charge the maximum on regulated debit transactions. And as mentioned above, processors often add markups to merchants’ debit fees.