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The Durbin Amendment: Swipe Fees Impact On Credit and Credit Scores

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The past year has seen quite a bit of focus and serious lobbying action in Washington regarding pending legislation under the Durbin amendment.  Among other things, this legislation affects the amount of money your bank receives from the retailer when you use your debit card to pay for the transaction.

Many consumers may be surprised to discover that, for example, the supermarket doesn’t keep the entire $20 you just paid for your groceries when you use your debit card for the purchase.  The supermarket pays the bank a fee (called a swipe fee) each time you use a debit card to pay for a purchase — $0.44 cents on average is paid to the debit card issuer.  When the Durbin amendment goes into effect in July 2011, that average fee is expected to drop to roughly $0.12 cents on average.

[Related Articles: The Durbin Amendment]

A couple cents drop may not sound like a big deal, but Americans use their debit cards to make a lot of purchases. A drop in swipe fee revenue from $0.44 to $0.12 (on average)  is estimated to cost the banking industry $12 billion a year in lost fee income.  What this means for consumers come July and beyond is currently unknown.

One possibility is that merchants will pass the savings on to consumers through lower prices.   Another option is that they won’t make any changes to their prices and pocket the savings themselves.  Most retailers have not shared what they plan to do with this extra savings and there are no rules in the legislation telling retailers what they must do with this incremental revenue.

Be ready as the days of free checking may soon be a distant memory as it is likely that banks will enact new checking and debit account features and fees in an attempt to make up for the $12 billion of lost annual revenue.

Will the Durbin amendment affect your credit report and credit score?

The good news — there is no direct impact on your traditional credit report/score as your checking and debit account information is not reported to the credit reporting agencies (Equifax, Experian and TransUnion).  There could be indirect impacts depending on how the enactment of this legislation causes you to change your mode of payment.  For example, if your bank imposes fees to use your debit card and you opt to pay for most purchases with your credit card instead, the incremental balances on your credit cards reported to the credit reporting agencies could make you appear more indebted – and thus potentially reduce your score.

Of course, paying with cash is another alternative and doing so won’t hurt your credit score.

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  • http://MSN Joanne Sandford

    I was over charged on facebook my deit card last four numbers 8085 $46.50

    • Deanna Templeton

      Hi Joanne – We’d love to help but when it comes to charges on a debit card, only the bank or the company that charged your card can address the issue. In this case, I’d contact both. Contact the company that overcharged you to dispute the charge and let them know you’re disputing the charge with your financial institution as well. Then contact your bank and let them know that you were over charged and they’ll be able to help and stop further charges.

      Also, be very careful about posting card numbers and account details online. In the wrong hands, an identity thief can do a lot of damage.

  • http://blog.wexlerwallace.com Jay

    Thanks for covering this issue – it seems like most consumers don’t even know that the swipe fee exists. Another consequence of a cap on swipe fees is that banks, with reduced revenue, could cut reward programs and possibly stop offering free checking accounts. It doesn’t seem like there are clear benefits for the consumer with this new reform. See more: http://blog.wexlerwallace.com/?p=953

  • http://blog.unibulmerchantservices.com M. S.

    The new debit limit benefits exclusively retailers, although their CEOs and lobbyists are telling us that consumers will be the ones who will reap the biggest advantage from the cap on debit fees. Any revenues lost by card issuers will translate directly into a positive revenue flow of an equal aggregate amount for retailers.

    It is very unlikely that any of the windfall will be passed on to consumers. Anyway, even if that did somehow happen, consumers would still be net losers, due to the fact that banks will inevitably make up for their interchange-related losses by generating higher revenues elsewhere. Actually, they are already doing it. http://blog.unibulmerchantservices.com/senate-hands-u-s-retailers-a-16b-win-over-card-issuers

  • Joe

    Okay. Tell me who was handed a monopoly by the Durbin amendment. The rumor out there is that a native American small company will benefit from the pass through fees. Who is it? It is alleged the Durbin amendment was challenged in court and was ruled legal.

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