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Ask the expert: Will checking account customers gain or lose from the Durbin Amendment?
Q: I've been reading lately about a wrinkle from last year's financial reform called the Durbin Amendment. As I understand it, this is supposed to limit what banks can charge on debit card transactions, but some bank officials are claiming it will raise fees. What's the deal--is this going to save me money or cost me money?
A: It's one of the wonders of how Washington works that a provision which primarily helps retailers was slipped into a body of legislation designed to protect consumers.
There are some good things in last year's Dodd-Frank financial reform act, but the Durbin Amendment isn't one of them. The Durbin Amendment limits what banks can charge retailers for what are known as "interchange fees"--the fees that banks charge retailers for processing debit card transactions.
Note that these are fees charged to retailers--not customers. If the Federal Reserve follows through with acting on the Durbin Amendment, do you think retailers will spontaneously pass those cost savings on to customers? Not likely, since these fees have been imbedded in the prices retailers charge, invisible to customers. The more likely outcome is that prices will stay where they were, with retailers pocketing the difference created by lower interchange fees.
So why should you care if retailers win one at the expense of banks? Because interchange fees are an important part of how banks pay for the cost of offering checking accounts. Drastically reduce interchange fees, and you are likely to see more fees on checking accounts. In particular, expect this to squeeze customers with smaller checking accounts.
New fees on checking accounts would be one thing if customers were reaping the benefits of lower interchange fees. However, since there is nothing to force retailers to pass those lower fees on to customers, the Durbin Amendment looks likely to cost consumers, not benefit them.
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