Senate votes down amendment to delay debit card rule

posted at 4:40 pm on June 8, 2011 by Tina Korbe

The Senate this afternoon defeated an amendment to delay the implementation of a controversial rule to regulate debit-card-related fees. It needed 60 votes to pass and received just 54, with 45 senators opposing. Because the amendment failed, the new rule will take effect July 21 — and consumers will pay the price.

According to information from the Electronic Payments Coalition — an organization working to stop the rule, Sen. Richard Durbin (D-Ill.) first proposed the new rule in May 2010 as an amendment to the Dodd-Frank financial regulation bill — and the amendment became law when the Senate passed the Dodd-Frank bill last July. But the Federal Reserve won’t begin to implement the rule until next month.

The so-called “Durbin Amendment” limits what retailers must pay to be able to accept debit cards — that is, it limits “interchange” fees. Specifically, the amendment suggests a cap of no more than a $0.12 fee for any debit card transaction. Right now, the precise price of interchange is essentially variable, dependent on the total amount of the transaction. Merchants typically pay debit card issuers — banks and credit unions — about 1.65 percent of the transaction.

On its face, interchange fee limits might sound like a good idea. Why should retailers have to pay more than $0.12 a transaction just to accept a debit card? And if merchants are able to save money by paying less for interchange, they’ll lower their prices, right? Consumers will benefit — and banks and credit unions will only be out a few cents per transaction. Right?

Not necessarily … In the first place, it’s important to note the obvious: When retailers send that 1.65 percent interchange to banks and credit unions, they’re not just paying a “fee” — they’re paying for a service. Debit cards are cheap and convenient — but, in an important sense, they aren’t free. When banks and credit unions issue debit cards, they also assume the costs of actually running the debit card program, as well as the risks of nonpayment and fraud. Durbin didn’t bother to factor those costs into his amendment. But it’s safe to say retailers probably pay the interchange fees because they’re worth it (although, of course, merchants in support of Durbin’s amendment say otherwise). If they weren’t, more merchants would have stopped accepting debit cards.

Once the Durbin amendment takes effect, even assuming retailers lower costs to pass their savings on to consumers, consumers could have to pay in other ways. Banks will have to make up lost revenue somehow. Maybe they’ll eliminate free checking or charge for online banking. Whatever it is, consumers probably won’t like it.

The point is: The rule will likely have unintended consequences. The amendment on the table today was merely a call to pause and study the issue further — to “Stop, study and start over.” Introduced by Sens. Bob Corker (R-Tenn.), John Tester (R-Mont.) and seven other bi-partisan co-sponsors, it would have delayed implementation for a year and requested a 6-month study of the costs of debit card transactions and the impact on consumers. According to the amendment, if the Federal Reserve and at least one other federal regulatory agency would have found the new rules to be unfair to financial institutions and consumers, the Fed would have had to rewrite the rules within 6 months. If not, the rules would have moved forward.

It should have been a no-brainer.


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Tester is a Dem, not R.

kevinkristy on June 8, 2011 at 4:43 PM

The only thing that price controls EVER do is create shortages.

RBMN on June 8, 2011 at 4:44 PM

It should have been a no-brainer.

Just like congress.

Darth Executor on June 8, 2011 at 4:44 PM

Quite right, Tina. Stupid rule, and the unintended consequences might be worse than the original “problem”. Cost-shifting, at best, and the consumer will always be at the bottom of that totem pole.

novaculus on June 8, 2011 at 4:46 PM

It’s not capitalism-capitalism

/whoopi

SirGawain on June 8, 2011 at 4:47 PM

My local bank has already raised several fees as a result of the Democrats financial regulations.

LibertarianRepublican on June 8, 2011 at 4:48 PM

Whenever the government gets involved in private transactions there is trouble… I do mortgages and our price per loan has almost doubled since the regulations to benefit borrowers went into law, they don’t help the borrowers at all and are more costly because we have to hire people now to make sure we adhere to the new laws. The laws are written by people that have absolutely no knowledge except what they hear of how to do a loan. They think it is great to make sure no borrower gets screwed and on paper it sounds good, but in reality it is awful and have increased how much I have to charge my clients by $420 per loan since December of 2010. Plus the information they get is so confusing that they don’t understand it. It is a cluster f of a mess and expensive for the clients. All the predatory lenders are out of the business and have been for years, and they were in a large part created by the CRA act the government put into effect in the first place.

Sorry having a bad day at work and this just hit a nerve.

momof2 on June 8, 2011 at 4:50 PM

From what I understand… The fees charged by banks acted as an insurance for fraud, since these cards are connected directly to bank accounts (not credit).

Now that they no longer have this “insurance” fund, banks supposedly will limit debit card purchases to $50. So forget any high price purchases via debit card going forward.

It will impact those with no credit most negatively.

kevinkristy on June 8, 2011 at 4:50 PM

If retailers hated these fees, why did they freely sign up for these services? My copmany accepts debit and credit cards. It is much safer and efficeint than checks and cash.

WashJeff on June 8, 2011 at 4:50 PM

NOTHING Democrats propose ever saves anyone money.

angryed on June 8, 2011 at 4:51 PM

Hey, Senators … how about passing a f****ing budget before you vote on crap like this?

OhioCoastie on June 8, 2011 at 4:52 PM

My local bank has already raised several fees as a result of the Democrats financial regulations.

LibertarianRepublican on June 8, 2011 at 4:48 PM

Bad thing is that there will be more fees coming soon..:(

Dire Straits on June 8, 2011 at 4:53 PM

It should have been a no-brainer.

And that’s exactly why the Senate couldn’t figure it out.

Chris of Rights on June 8, 2011 at 4:54 PM

Now that they no longer have this “insurance” fund, banks supposedly will limit debit card purchases to $50. So forget any high price purchases via debit card going forward.

It will impact those with no credit most negatively.

kevinkristy on June 8, 2011 at 4:50 PM

Perfect. So for not being in debt you get gobsmacked.

Usury is simply the cat’s pajamas.

Limerick on June 8, 2011 at 4:59 PM

The news is reporting this as a good thing. Phooey. In July, I switch to using a credit card and will pay it off every month. I won’t be paying their fees, period.

hachiban on June 8, 2011 at 5:02 PM

Well, I think what they’ll find is that poor people are going to bear the brunt of this.

As typical with leftist policy designed to “help” the poor, it actually does more to hurt them.

I don’t have any statistics to support my belief, but I would bet it’s the working poor that utilizes debit cards more than any other class. It doesn’t require good credit, but yet can be used like a credit card online and other venues.

Since banks will be capped on what they can charge the retailer for using their services per transaction, most retailers will probably get hit with a new fee designed to circumvent the law.

And of course those fees are ALWAYS passed on to the consumer.

ButterflyDragon on June 8, 2011 at 5:02 PM

This is nothing but a price control. Price controls always have negative unintended consequences. I’m guessing that services will disappear or higher fees will be applied more directly to the consumer, or both.

But I’m sure the real consequences will be worse than we can imagine right now. The most financially irresponsible entity in all of human history is calling the shots here.

forest on June 8, 2011 at 5:02 PM

This stuff bugs me so much. It is not the government’s business what agreements a consumer makes with his bank. Why is the freaking government even interfering here. Of course, yes, I know the answer.

JellyToast on June 8, 2011 at 5:03 PM

Great, there goes free checking.
Thank you Big Gov.

carbon_footprint on June 8, 2011 at 5:04 PM

Eh… I say bring the pain.
.
Then be sure to give blame where blame is due.

SnowSun on June 8, 2011 at 5:04 PM

The news is reporting this as a good thing. Phooey. In July, I switch to using a credit card and will pay it off every month. I won’t be paying their fees, period.

hachiban on June 8, 2011 at 5:02 PM

Why will businesses accept credit cards after this goes into affect?

If credit cards still have the 1% to 1.5% fee, it is more advantageous to the business if the customer uses a debit card. Since any person that has a credit card can, and probably does, have a debit card, it will not be surprising to see businesses stop accepting credit cards.

WashJeff on June 8, 2011 at 5:07 PM

Do these rules apply to Credit Unions?

Cindy Munford on June 8, 2011 at 5:08 PM

Unless I’m mistaken, there are no risks of non-payment with debit cards – if the money’s in the account, the charge goes through and the money comes out of your account.

And it’s safer than accepting cash which can be stolen.

Banks are reaming retailers to begin with on these fees.

Midas on June 8, 2011 at 5:08 PM

My local bank has already raised several fees as a result of the Democrats financial regulations.

LibertarianRepublican on June 8, 2011 at 4:48 PM

I got a $8.99 ding yesterday, which was reversed for having $X in my checking account. It bugs me that with all the links on their website, they don’t have one describing what type of checking account I have, you know, minimums, fees. Isn’t that the FIRST thing people want to know, after their balance?

Your Accounts >>

Funds Transfer
Make a Payment
Make a Deposit (New)
Cash Advance
Download Transaction Data
Online Statements

Alerts >>
Bill Pay (Free)
Mobile Banking

Who gives a fig. Tell me what I need to know.

Paul-Cincy on June 8, 2011 at 5:11 PM

The news is reporting this as a good thing. Phooey. In July, I switch to using a credit card and will pay it off every month. I won’t be paying their fees, period.

hachiban on June 8, 2011 at 5:02 PM

You’re paying the fee no matter how you pay for your items.

The fee they refer to is a fee to the retailer you buy from.

When I decided to accept credit cards for my business, I had to shop around with numerous banks to find the best rates. I had a retail storefront while also having a mail order business.

I had to get two different terminals. One for my walk-in customers that I could swipe the card. It was a cheaper fee per transaction because a swiped card allowed for less possibility of fraud.

My mail order terminal I had to pay a much higher fee per transaction and of course the regular fees just for having the terminal. When I first did this (back in the 80′s) I actually charged my mail order credit card customers more for their services. In fact, it specifically said a percentage added to credit card orders. I can’t remember what the percentage was, but it was whatever the bank was charging me per transaction.

That fee was clearly visible to my customers.

After a few years getting tired of explaining to my customers why I “charged” them for using a credit card, I just baked it into my price of everything I sold and removed the offending surcharge from my literature.

So, all my customers paid for that extra fee, even if they didn’t use a credit card. They just didn’t know it.

Now, the banks that handle these terminals for the retailers are going to make their money up somewhere. They’re not going to eat the cost just because the government told them they have to put a cap on a specific fee.

And once again, it will always be passed on to the consumer.

All this legislation does is insure that the banks will spend money creating a new policy that will ultimately make them more money than they would have got if the government had just left it alone.

ButterflyDragon on June 8, 2011 at 5:11 PM

If retailers hated these fees, why did they freely sign up for these services?

WashJeff on June 8, 2011 at 4:50 PM

Try opening a business and *not* accept credit/debit cards. You won’t be open long, because consumers won’t be buying anything to speak of from you with cash or checks anymore.

Checkbooks are becoming the yellow pages in a way – most people aren’t sure when they saw theirs last, or where to find it if they had to.

Midas on June 8, 2011 at 5:12 PM

So…

1. I have the money to pay you.

2. You insist I take a loan out instead.

There it is. Doesn’t matter if you are paying a 3% credit card or a 29.99% credit card. You pay out the nose. The new norm is if you are good for it you can’t be trusted.

Limerick on June 8, 2011 at 5:14 PM

Quite right, Tina. Stupid rule, and the unintended consequences might be worse than the original “problem”. Cost-shifting, at best, and the consumer will always be at the bottom of that totem pole.

novaculus on June 8, 2011 at 4:46 PM

You are assuming they are unintended. I think after all of the “unintended” consequences, it becomes common knowledge that bad things happen when Congress gets involved. At that point they know the consequences, but choose power and pride over the right thing to do.

jeffn21 on June 8, 2011 at 5:15 PM

ButterflyDragon on June 8, 2011 at 5:11 PM

Well, crap.

SnowSun on June 8, 2011 at 5:15 PM

Try opening a business and *not* accept credit/debit cards.
Midas on June 8, 2011 at 5:12 PM

Family has been in business for 40+ years. Credit and debit cards are much better than cash and checks. We stopped accepting checks long ago due to fraud and cash can get scary in some of the neighborhoods our business operates.

It’s a good service for buyer and seller.

WashJeff on June 8, 2011 at 5:18 PM

I own a small retail shop, and if all I had to pay was 1.65% I would be thrilled. Try 2.75% plus all kinds of other fees. American Express and Discover are closer to 4%. After paying the credit card/debit card fees to the card service provider, you STILL have to pay your own banks fees. That doesn’t even include the outrageous price you have to pay for the machine to run the card with…….. Here’s an idea, people. Pay cash.

bicraftuallass on June 8, 2011 at 5:19 PM

Here’s an idea, people. Pay cash.

bicraftuallass on June 8, 2011 at 5:19 PM

Yeah, that’ll work on Amazondotcom.

Limerick on June 8, 2011 at 5:21 PM

Limerick:
Silly you. You should be buying from your local bookshop, anyway!

bicraftuallass on June 8, 2011 at 5:25 PM

I have a no fee credit card from my credit union that gives me points that I can redeem for either products or gift cards. I pay off my credit card monthly to where I have no interest charges. At the end of the year, I have enough points saved to get a visa gift card to buy Christmas presents with. Win/Win for me.

PrettyD_Vicious on June 8, 2011 at 5:27 PM

Here’s an idea, people. Pay cash.
bicraftuallass on June 8, 2011 at 5:19 PM

Riiiight. Maybe we should revert to whale oil while we’re at it.
****

Related item vis a vis Dodd-Franks Fiasco:

Sen. Chuck Schumer is doing a similar dance right now, worrying about some of the effects of Dodd-Frank. The Wall Street Journal editorial page put it well:

Step One: Vote for destructive law.

Step Two: Complain about said law, while doing nothing to repeal it.

Step Three: Raise campaign money by showing to business community the volume of said complaints.

Buy Danish on June 8, 2011 at 5:32 PM

bicraftuallass on June 8, 2011 at 5:19 PM

If you get mugged/pick pocketed, you can get any money back the thief steals from your account. If its cash, its gone.

Wolftech on June 8, 2011 at 5:32 PM

I have a no fee credit card from my credit union that gives me points that I can redeem for either products or gift cards. I pay off my credit card monthly to where I have no interest charges. At the end of the year, I have enough points saved to get a visa gift card to buy Christmas presents with. Win/Win for me.

PrettyD_Vicious on June 8, 2011 at 5:27 PM

I think you’re missing the point; the fees in question are those between the banks and retailers, not expressly at the consumer level.

Midas on June 8, 2011 at 5:33 PM

Banks are sticking it to merchants to the tune of 44 cents per transaction. Everything gets passed on to the consumer whether it’s the merchants to make up for bank fees or banks to make up for this.

This is a mountain out of a mole hill and is only done to make politicians look good.

Vince on June 8, 2011 at 5:38 PM

Riiiight. Maybe we should revert to whale oil while we’re at it.
Buy Danish on June 8, 2011 at 5:32 PM

I’m not keen on that concept.

bicraftuallass on June 8, 2011 at 5:40 PM

i think one of the reasons that O gets by with so much (aside from a left wing/adoring/man crush media) is the swarming of initiatives.

Here’s another pretty much under the radar new story…we’re going to bailout Greece..oh goodie. (of course as members of the IMF we’ve already ponied up some the first time around)…but you see the Germans are getting a little nervous about being the big fish on the hook to “save the EU”….I mean, the greeks blew thru 160B in the first bailout…so I’d be a little nervous too…

http://danieljmitchell.wordpress.com/2011/06/08/obama-wants-american-taxpayers-to-bail-out-greek-politicians-and-dig-the-debt-hole-even-deeper/

r keller on June 8, 2011 at 5:43 PM

Here’s an idea, people. Pay cash.

bicraftuallass on June 8, 2011 at 5:19 PM

Local liquor store has discounted prices on many items for “cash”. Works for me. I avoid the use of plastic for the most part anyway..

novaculus on June 8, 2011 at 5:49 PM

ugh, the stupid a$$ 111th congress strikes again, the GOP should’ve fillibustered everything once Brown was in.

joeindc44 on June 8, 2011 at 6:07 PM

Is the approval on congress down to the single digits yet? Not that those elitist morons care…. Repeat after me… term limits…. term limits….. term limits….. Da*n liberals. Both sides of the aisle.

ultracon on June 8, 2011 at 6:14 PM

It should have been a no-brainer.

Ah, but there’s the rub, none of the 17 croney capitalist Republican Senators who voted for Durbin’s bill have a brain.

I really can’t stand these economic illiterates.

mizzoujgrad on June 8, 2011 at 6:23 PM

If someone buys a $100 item from me, I pay roughly between $3 and $6 to process the credit card. If those fees were reduced, would I pass it on to the consumer? No. The electricity bill for my business was $335 last month. It went up, unexpectedely.

sherry on June 8, 2011 at 6:37 PM

I have a portion of my paycheck direct deposited into a Netspend debit account. This rule will probably cause Netspend to increase their fees or reduce services, if they don’t just close up shop altogether.

Another convenience reduced/eliminated by an idiot who doesn’t understand economics. Thanks a lot, Dick! Your name is appropriate.

Random Numbers (Brian Epps) on June 8, 2011 at 6:38 PM

Why are they worried about this, when they haven’t passed a budget for several hundred days?

right2bright on June 8, 2011 at 6:41 PM

I was cleaning out my desk the other day and found one of my original “Tyme” cards from around 1987. Those early ATM machines were a treat, it swallowed your whole card up and you hoped it would spit it out when you were done.

lowandslow on June 8, 2011 at 7:26 PM

Banks save a lot of money with electronic transactions. That is why they are moving toward electronic statements. Should I now pay a fee for the “service” of reading my previously free statements”? They used to have to pay postage. Now they don’t. Step 3. Profit! Would they rather go back to cash only transactions and staff their branches accordingly? I remember when withdrawing money from your account cost nothing. Now it’s frickin’ 3 bucks!

ronsfi on June 8, 2011 at 7:29 PM

I wonder how this will affect those little apps for the iPhone that allow you to make credit card transactions, anywhere without high fees…. oops high fees where we come.

Dasher on June 8, 2011 at 8:07 PM

The problem with Democrat policies is that “the rich” always make the same amount of money: every cent they can. They’re a lot like the poor, that way.

Price controls result in shortage. Always. Either fewer local banks will stop offering Free Debit or they’ll raise your other fees.

And then we’ll all sit around and complain about those. Someone oughta pass a law!

When you perceive economic questions in terms of ethics morality, you’re already beyond understanding them. Nobody does anything at 8am but for money.

HitNRun on June 8, 2011 at 8:12 PM

Wow…yeah I’m looking forward to having Wells Fargo start charging me $5 a month to have a debit feature on my card.

Did Durbin seriously think that banks would go from getting $16.50 on a $100 transaction to making 12 cents and NOT hit the consumer with the added cost? He is truly an idiot.

MannyT-vA on June 8, 2011 at 8:21 PM

Hey, I have no problem going back to writing checks. Which if I’m not mistaken are still free to process through the retailer.

jaimo on June 8, 2011 at 8:58 PM

2 words people, CREDIT UNIONS!!!!!!!!!!!

I belong to 2

Free checking, only have to have the $5 minimum in the savings account for my membership. Lower interest credit cards, low fees for mortgage, not sure about car loans because I used to do the zero interest with the dealers, but I haven’t bought a car since 2003.

karenhasfreedom on June 8, 2011 at 9:12 PM

When banks and credit unions issue debit cards, they also assume the costs of actually running the debit card program, as well as the risks of nonpayment and fraud.

So why aren’t the same fees levied on paper checks? The same issues are present.

unclesmrgol on June 8, 2011 at 9:45 PM

Something else for the Dems to own, or the next crisis to fix? We gain clarity.

exdeadhead on June 8, 2011 at 11:12 PM

Maybe they’ll eliminate free checking or charge for online banking. Whatever it is, consumers probably won’t like it.

Then switch to one that doesn’t.

However, I suspect that if most do so all will…”industry-wide standards”.

Actually, “collusion”.

Dr. ZhivBlago on June 8, 2011 at 11:44 PM

Hey, I have no problem going back to writing checks. Which if I’m not mistaken are still free to process through the retailer.

jaimo on June 8, 2011 at 8:58 PM

Most places now have check scanners which work just like CC and debit cards. A fee is involved.

The bank makes money coming and going on every single transaction. It drives me nuts.

ButterflyDragon on June 9, 2011 at 1:29 AM

The only reason not to like the price control is idealogical. The reasons used in this article are not convincing, I dont have to use debit cards for transactions, if banks want to entice me to do so, they can do it, they should not be able to gauge merchants to pay for what they want. They insist the service costs more, then dont offer it, big deal, as if it is a great idea to have a key to your checking account with you at all times.

anikol on June 9, 2011 at 7:07 AM

The only reason not to like the price control is idealogical. The reasons used in this article are not convincing, I dont have to use debit cards for transactions, if banks want to entice me to do so, they can do it, they should not be able to gauge merchants to pay for what they want. They insist the service costs more, then dont offer it, big deal, as if it is a great idea to have a key to your checking account with you at all times.

anikol on June 9, 2011 at 7:07 AM

No, there are lots of non-idealogical reasons to not like price controls. The first of which is that they don’t work. Do you think that the banks charged the debit card fees just for sheer profit? There are myriad costs to maintaining a debit card system, not the least of which is continuously updating the security of it. Nobody said that YOU must have a debit card, but there are millions who like the convenience of it.

Now that Congress has decided to mess with the free market by legislating what a business my charge for their product, there will be repercussions. Businesses will not just roll over and accept the losses for maintaining debit cards. They will find ways to recoup their costs. Do not think that you won’t be impacted just because you don’t use a debit card.

RedinPDRM on June 10, 2011 at 3:03 PM