Durbin Delayed Again

Thursday, June 30, 2011

The federal reserve board met yesterday and put together their 'interim' final rulings on the Durbin Amendment.  There was some movement on the proposed debit cap and a deadline extension was granted for the implementation of the Durbin Amendment itself.  How frustrating for all parties involved to have this financial reform drag on and on- many questions still remain unanswered and the consensus is, that only time will tell what the real ramifications will be for consumers, merchants, processors & card issuing banks alike.  Here are some highlights from the ruling:

  • October 1, 2011 would be the effective date for the interchange fee standards (including, on an interim basis, the fraud-prevention adjustment), as well as the routing restrictions.
  • A delayed effective date of April 1, 2013, for certain cards with particular technological challenges, including certain health benefit cards, as well as certain prepaid cards.
  • A modified version of the proposed Alternative 2 (stand-alone cap) for the interchange fee standard, with a cap composed of a base component of 21 cents and an ad valorem component of 5 basis points to reflect a portion of fraud losses.
  • With respect to the fraud-prevention adjustment to the interchange transaction fee, staff recommends that the Board adopt an interim final rule that allows a fraud prevention adjustment of 1 cent per transaction conditioned upon the issuer adopting effective fraud prevention policies and procedures. 
    For the full text of the ruling CLICK HERE

I've received many calls asking, 'how does this affect our financial institution' and 'how does this affect my credit card processing rates' and finally, 'how will my debit card change?  If you spend a few minutes reading the 37 page ruling, your first reaction might be the same as mine- WHAT?  The ruling is confusing and contains an incredibly large amount of guesstimations on the overall impact of this financial ruling.  In one place, the ruling even stated: 

  • Staff believes that it is unclear whether consumers in aggregate will benefit from or be harmed by the draft final rule.?
  • ???

I believe that the cost to process pin based debit cards will most certainly go down and that eventually, the merchant will see a reduction in their pin based debit fees (I say eventually because the issuers have been given until October of this year to implement the rate changes AND the processing industry still has the ability to mark up the cost before it is sold to merchants).  I also believe that the financial institutions that are about to see a 40% reduction in their pin based debit interchange revenue, will find a way to replace that revenue.  I think it is fair to assume that consumers and businesses alike will end up paying elsewhere to 'make up' for that lost revenue.  It seems reasonable to assume that debit cards and the way they are used will be altered; rewards programs have already been adjusted and will most likely continue to be adjusted, so the banks can afford to offer a variety of programs.  The possibility exists that financial institutions could offer incentives that encourage consumers to use credit cards versus debit cards, for their every day transactions.  Those are just a few of the things that we are in store for- however we will have to take the proverbial 'Wait & See' route to really know how a bill, created & passed without a full understanding of the ramifications, will impact us all.

Please stay tuned to our Blog for any additional insights as we continue to monitor the financial scene and thank you for trusting TMC to provide good information & great processing options! 

Cheri Perry 6/30/2011

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