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The impact of the Durbin amendment on the banking industry

[Saturday, March 12th, 2011]

The banking industry is less than thrilled with the provisions of the Durbin Amendment that were appended to the Dodd-Frank bill for financial reforms. The provisions of this amendment stipulate the Federal Reserve to set limits on the interchange fees levied on merchants by banks that have over $10 million in assets.

This provision of the amendment unleashed the fury of credit card lenders who would lose a considerable amount of revenue with its implementation. The banks lamented that the implementation of this rule would lead them to increase the fees for checking accounts and rates of interest on credit cards, in addition to offering lesser number of loans. The banks also said that lack of interchange fees would make it difficult for them to offer fraud protection.

The reason to limit the interchange fees is the fact that these fees are very high as compared to fraud protection costs and cost of issuing these cards. The interchange fees vary greatly from one lender to the other. Premium cards, that charge twice the swipe fees as compared to debit cards, are the biggest offenders.

It is not only the banks, but also the credit unions that are unhappy with the implementation of the Durbin Amendment. Some of the not-for-profit credit unions that cater only to a specific section of people are the worst affected since they have had to increase their fees and reduce the benefits offered to their customers. One of the surveys conducted by the National Association of Federal Credit Unions has revealed that over 50 percent of the respondents were considering increasing the fees of checking accounts to make up for the loss, while a few others were giving a though to laying off employees.

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