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Durbin Amendment and Your Merchant Services

Updated on January 10, 2012

The Durbin Amendment to the Dodd-Frank Act does not allow you to print money but it can have a HUGE effect on your bottom line. So is your credit card processor is going to LET your business benefit?

If you accept credit cards undoubtedly you have heard of the Durbin Amendment to the Dodd-Frank Act and that it would drastically reduce the cost of your merchant services to accept credit cards and debit cards. This is all true; however, you need to make sure that your credit card processor is passing on the savings that this act is intended to save you. The reason I say this is because the Durbin Act only applies to the Interchange fees that can be levied against transactions by Debit card. The Durbin Act does NOT apply to what your merchant services provider can charge you above Interchange. So your credit card processor could be appreciating a 50% reduction in cost on Debit transactions but not pass any of these savings onto you! So starting on October 1st , 2011 you are going to have the opportunity to find out if your merchant services credit card processor is honest or not!!!

The Durbin Amendment as a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act was proposed to place a cap on the interchange fees that are charged with every credit card and debit card transaction. The final approved bill applies only to the interchange rates and fees associated with Debit Cards as it was considered that the fees being applied to debit transactions was excessive.

So what is the result of the Durbin Amendment to the Dodd-Frank Act?

The Durbin Act is the first ever credit card industry federal pricing regulation. It was put in place to ensure a significant reduction in the cost of debit card transactions for merchants and consumers. This was to encourage spending while simultaneously increasing business owner profits. The Durbin Amendment to the Dodd-Frank Act will cap the cost of processing a Debit Card payment at .05% and $0.22/transaction and the possibility to add on 1 cent if certain criteria are met. This can represent a significant savings to merchants especially considering that about 26% of card payments are made using a Debit card. With a country wide industry average purchase amount of $38 this accounts for a 45% reduction in cost!

The Durbin Amendment also modifies two of Visa/MasterCard policies allowing:

1. Merchants to place a $10 minimum on debit card purchases.

2. Merchants to offer discounts to customers who pay with a Debit Card OR Cash

Prior to these modifications Merchants practicing these policies prior to the Durbin Act were subject to fines being denied the ability to accept a credit or Debit card payments ever again.

Being that smaller credit unions and banks with assets of less than $10 billion can represent up to 75% of their net income. The Fed has only applied the Durbin amendment of the Dodd-Frank Act to banks with less than $10 billion in assets. The amendment is projected to save retailers between $6 and $8 billion in the next 12 months!

How do you make certain that your business is maximizing the benefits of the Durbin Amendment?

First of all if you are on a Tiered pricing structure or see the words “Qualified,” “Mid Qualified,” “Non Qualified” on your merchant services billing statement it is time to demand that your business is switched over to a true Pass Through Plus or InterChange Plus pricing structure. If your merchant services credit card processor refuses to do this then it is time to switch to a merchant services provider who has your best interests in mind. Your business deserves the most cost effective pricing structure - it deserves Interchange Plus pricing!

Some merchant service providers have initiated disturbing new practices when it comes to Interchange Plus pricing so that they can appear to be competitive. So make sure that you read your proposal and contract very carefully. Interchange Plus pricing is by far the most efficient way to accept credit cards; however, with true Interchange Plus pricing you should not have to pay additional downgrades to Interchange for Mid and Non Qualified transactions. These costs are built into Interchange!!! Many service providers have begun to provide Interchange plus proposals with non qualified transaction assessments. This is not an acceptable practice and is purely in place to ensure big profits for the credit card processor.

The average merchant is expected to save upwards of $1300 annually!!!!

Make sure that your business gets it’s piece of the pie! Many credit card processors will only be passing down some of the savings while others will try to pass on none of the savings! The Durbin Act Amendment was intended to make your business more profitable and the Merchant Doctor is here to pass on 100% of the savings to your business. Make sure you keep that Durbin Dough in your bank account and not your credit card processors!

What is the Downside to the Durbin Amendment? Many of the countries large banks have begun to implement new fees to offset the loss of income that they will experience as a result of this legislation. From no more free checking, issuing monthly fees for debit card use, and stricter account minimums the banks are determined to recapture some of the billions in revenue that will evaporate starting on October 1, 2011.

When you want to accept credit cards it doesn't have to be difficult, mysterious, or overly expensive. If you have any questions about how to easily accept credit cards, the Durbin Amendment, the Dodd-Frank Act or anything relating to merchant services or mobile payment processing leave then below and The Merchant Doctor will honestly answer them for you right away!

Has your processor informed you of the Durbin Amendment and How it will effect your monthly bill?

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