Durbin Law

Durbin amendment was proposed by Sen. Richard Durbin focuses on placing a cap on debit card interchange rates and other reforms in the payment card industry. The objective was to lower acceptance costs for merchants and to provide more competition among card networks. The average fee of 44 cents per debit card transaction charged from merchants by the card brands was considered excessive by supporters of the legislation.After so much opposition the amendment went into effect from October 1, 2011.The law ensures that card networks stop imposing penalties and additional fees on merchants.The law applies to banks with over $10 billion in assets and restricts the large banks and card companies from using their dominant market power to force merchants to accept anti-competitive restrictions. These banks have to charge debit card swipe fees that are reasonable and proportional to the actual cost of processing the transaction.The large credit card companies are no longer able to punish merchants for offering discounts to customers for using another card network; or discounts for using cash, check, debit card or gift card and loyalty cards; or set a minimum or maximum transaction amount for payment by card.To enforce this part of the law, the Durbin Amendment gave the Federal Reserve the power to regulate debit card interchange fees.

Until the Durbin-law is imposed the average interchange fee charged from merchants was 44 cents per transaction. The Durbin law imposes a cap on this fee. Originally set to take effect July 21, limiting banks with more than $10 billion in assets to a maximum 12 cent fee charged to merchants per debit card transaction. After the Durbin Amendment final bill takes effect on October 1, 2011, the fee is capped at 21 cents, plus 0.05% and an additional discretionary 1 cent for institutions employing effective fraud prevention initiatives.Issuers eligible for this adjustment, could then receive a maximum interchange fee of 24 cents for the average debit card transaction.