Law to Reduce Debit Card Fees to Retailers Has Opposite EffectDecember 12, 2011 | By: Sean Murray
We’ve had many negative things to say about the debit card reform law that went into effect a few months ago (AKA the Durbin Amendment). We’ve repeatedly made claims that retailers won’t participate in the savings but for the few that do, those savings won’t be passed on to the consumer.
According to a recent article in the Wall Street Journal, something much worse is happening; Debit card fees are going up!
“Jason Scherr had a lot on his mind the day after he opened his fifth Think Coffee shop in Manhattan last week. The fan was blowing too hard, the classical music was playing a little too loudly—and he was trying to figure out how to get more customers to pay with cash.
Manhattan coffee-shop owner Jason Scherr says his debit-card fees are higher since the Dodd-Frank law.
A new law that was supposed to reduce costs for merchants that accept debit cards has instead sent Mr. Scherr’s monthly processing bills much higher and forced him to reassess the way he does business.
“My choice is to raise prices, discount for cash or get an ATM,” says Mr. Scherr, a lawyer who has been in the coffee-shop business for more than a decade.
Just two months after one of the most controversial parts of the Dodd-Frank financial-overhaul law was enacted, some merchants and consumers are starting to pay the price.
Many business owners who sell low-priced goods like coffee and candy bars now are paying higher rates—not lower—when their customers use debit cards for transactions that are less than roughly $10.
That is because credit-card companies used to give merchants discounts on debit-card fees they pay on small transactions. But the Dodd-Frank Act placed an overall cap on the fees, and the banking industry has responded by eliminating the discounts.
“There will be some unhappy parties, as there always is when the government gets in the way of the free-market system,” says Chris McWilton, president of U.S. markets forMasterCard Inc. He said the company decided that it couldn’t sustain the discounts under the new rate model because the old rates had essentially subsidized the small-ticket discounts.
Merchants now are trying to offset their higher rates by raising prices, encouraging customers to pay in cash or dropping card payments altogether.”
Read the full article at WSJ.comLast modified: January 24, 2012
Sean Murray is the founder of deBanked, an 11-year veteran of the merchant cash advance industry, a casual Lending Club and Prosper note investor, the co-founder of Daily Funder, an alternative lending speaker, consultant, writer, and enthusiast. Connect with me on LinkedIn or follow me on twitter.