A late addition to the Dodd-Frank Act--the regulation meant to address the roots of the financial crisis--took effect this month. But it doesn't always help merchants.
Recently Bank of America introduced one of its all-time most hated fees: a $5 monthly debit charge.
The bank said it needed to introduce the fee to fill revenue gaps created by the Durbin Amendment, an 11th-hour addition to the Dodd-Frank Act of 2010. The amendment, which went into effect on Oct. 1, essentially limits the amount of money banks are allowed to charge merchants per transaction, which is a major source of bank revenue.
Specifically, the Durbin amendment lowers the banks' transaction fee to a maximum of $0.21 on all transactions for merchants, an effort to save retailers money. It also allows merchants to impose a $10 minimum on bank card transactions, as well as give cash discounts for using plastic, two practices that were banned in previous years.
Within the first week, retailers started to see savings. By Oct. 3, merchants had already saved about $1.8 million, according to data released by Heartland Payment Systems, one of the nation's largest payments processors. About one-third of those merchants were restaurants. Heartland estimates that its average merchant will save more than $1,000 in the first year.
"The scope of Durbin is much more massive than people think," says Henry Helgeson, the co-CEO of Merchant Warehouse in Boston, a payment processing company that sees about $78 billion in yearly credit card volume across its 70,000 merchants. "As far as scale, it's going to be one of the biggest things we see happen this year."
However, Helgeson believes the picture may not be so rosy for all small businesses. Merchants that process many low-priced items may end up paying more, since the amendment eliminates the MasterCard and Visa "small-ticket" interchange rates that previously protected places like coffee shops, which have a high volume of small transactions.
And on the consumer side, Helgeson says, the Durbin tax may even choke consumer spending, as people shy away from using debit accounts.
"It tugs on a lot of strings around consumer spending, which is the heart of the economy," he says.