Durbin Amendment

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Permalink Reply by JJ Hornblass on July 9, 2010 at 1:37pm

Summary of the modifications to the Durbin interchange amendment, courtesy of the senator's office:

Government administered cards

* The Senate-passed amendment would regulate the interchange fees associated with debit or prepaid cards issued by large banks on behalf of government-administered payment programs (e.g., unemployment insurance, TANF, child support).

* The compromise exempts federal, state and local government program debit and prepaid cards from interchange regulation, provided that after a two-year grace period the prepaid cardholding beneficiaries are not charged any overdraft fees or fees for the first monthly in-network ATM withdrawal.

Definition of “interchange transaction fee”

* The Senate-passed amendment defined “interchange transaction fee” to include debit card fees that are established by a payment card network (e.g., Visa and MasterCard) and that accrue to either the card-issuing bank or to the network itself.

* The compromise provides that the Fed cannot regulate network fees (i.e., the fees that Visa and MasterCard charge and that accrue to themselves) except to ensure that the fees are not used to circumvent interchange fee regulation. These changes are a different way of accomplishing the same goal of protecting consumers from loopholes which would allow banks to raise fees to cover any loss in interchange revenue.

Reloadable prepaid cards

* The Senate-passed amendment would regulate the interchange fees associated with reloadable prepaid debit cards, which are in common use by consumers who lack bank accounts.

* The compromise exempts these cards from interchange regulation, provided that after a two-year grace period the issuing bank must not charge cardholders any overdraft fees or fees for the first monthly in-network ATM withdrawal. The compromise is an attempt to protect the unbanked from being driven to payday lenders and other non-bank entities for their financial needs. It further ensures that fees won’t be charged on those who can least afford them.

Fraud prevention costs

* The Senate-passed amendment did not permit consideration of fraud prevention costs in the calculation of reasonable and proportional interchange rates.

* The compromise provides that the Fed can adjust the interchange fee rate received by a particular card-issuing bank if the bank demonstrates that the adjustment is reasonably necessary to cover fraud prevention costs incurred by the bank. In order to qualify for this adjustment, the bank would have to comply with standards established by the Fed that would demonstrate that the bank is taking effective steps to reduce fraud, and the bank would also have to show that the adjustment it seeks is limited to those reasonably necessary fraud prevention costs. This compromise provides competition where there is currently none. Banks will be incentivized to efficiently and effectively prevent fraud while competing to provide the best protection for the lowest cost. These changes will make the market more efficient and allow for savings to be passed on to consumers.

Discounting between card networks

* The Senate-passed amendment provided that card networks could no longer prevent merchants from offering customers a discount to use one card network vs. another (e.g., a discount to use Visa vs. MasterCard), and that this discount would apply in both the credit card and debit card contexts.

* This provision has been removed from the amendment. In its place, the compromise includes a provision directing the Fed to issue rules preventing card networks from requiring that their debit cards can only be used on one debit card network (thereby ensuring that merchants will have the choice of at least two networks upon which to run debit transactions). This provision also provides additional competition to a previously non-competitive part of the market. It allows merchants to choose the debit network with the lowest cost – the opposite of the current system where merchants are forced to use a specific network with fixed prices.

Discounting between forms of payment

* The Senate-passed amendment provided that card networks cannot prevent merchants from offering a discount for one form of payment vs. another (cash vs. check vs. credit vs. debit). The compromise clarifies that these discounts cannot be offered if the discounts differentiate between card issuers or card networks.

* The compromise further clarifies that the discount must be offered to all prospective buyers and disclosed clearly and conspicuously to the extent required by federal and applicable state law, though a network would not be permitted to penalize a merchant for a discount that is provided in compliance with federal and state law. This change simply clarifies the language in the Senate bill which allowed merchants the ability to offer discounts for one form of payment over another.

Setting of maximum/minimum transaction thresholds for use of a credit card

* The Senate-passed amendment provided that card networks could not prevent merchants from setting a minimum or maximum dollar amount for payment by credit card.

* The compromise provides that such a minimum may not exceed $10, with authority given to the Fed to increase that dollar amount. The compromise also limits the ability to set maximums for payment by credit card to the Federal government and colleges and universities. The compromise further clarifies the Senate language and establishes that a minimum payment not exceed $10 – matching laws currently on the books in a number of states.

Non-discrimination between cards issued by different banks

* The Senate-passed amendment did not change the existing prohibition in the operating rules of Visa and MasterCard against card issuer discrimination.

* The compromise amendment contains a rule of construction affirmatively stating that nothing shall be construed to authorize any person to discriminate between debit cards or between credit cards on the basis of the issuer who issued the card. This language further clarifies the Senate passed language regarding non-discrimination between card issuers.

Authority of the Federal Reserve Board vs. the Consumer Financial Protection Agency/Bureau

* The Senate-passed amendment provided for regulatory authority under the amendment to migrate to the Consumer Financial Protection Agency/Bureau after the CFPA/B is established.

* The compromise provides that regulatory authority under the amendment shall remain with the Fed.

Non-applicability to USDA nutrition assistance program EBT cards

* The Senate-passed amendment was silent on the applicability of the amendment to USDA’s nutrition assistance programs in which interchange fees are not charged for electronic benefit transfer (EBT) transactions.

* The compromise makes clear that nothing in the amendment shall apply to these nutrition assistance programs.

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Permalink Reply by Andrea Psoras on July 11, 2010 at 2:24pm

in many cases with these sorts of programs, if the recipient has NO bank relationship, the program is administered through a typically very large financial institution chosen by the Government and/or its Public Assistance arms administering these sorts of benefits. It is the government administering the benefits that should be entirely responsible for the fees because the government chose the distributing institution as well as the method the benefits are administered, if its a benefits card that when all the benefits are exhausted for the period there is NO way to overdraw. For any bigFinancial to in any way be chiseling and scamming and squeezing the little guy and these are the most financially vulnerable people in our society, while the 'masters-of-the universehave conceitedly themselves purposely blew up their institutions and then threatened to 'take-out' 'main street' unless Congress bailed out agency and their inside dealings, their pump-dump, their maggotry synthetics -structured product - that largely were to line their own pockets when they'd reached the end of the mortgage cycle which happens when rates go up AND the economy is in bad and increasingly deteriorating condition, which its been from the time including NAFTA. It would be different if i were wrong, but the more repugnant shaking down of their lackeys by the bigFinancials, but the more they want to squeeze the masses, it looks more and more like what the founders left behind and what was also worse about it in the Old World- europe/france, the former pre-german duchies, etc. But considering people who conceitedly with their IVY degrees or whatever and the fact that the government had to flush the markets/financial system with between $10-$16T in order to have moving markets and so that the banks could pay out on their obligations, start to have money for collateral and 'capital' they didnt at all have for virtually any of their OTC derivative activity and their synthetics, their structured product using or based on non performing assets, and they have the unmitigated gall to have a problem to have to stand up on their own two feet lest they forget now whose wallet they're on and now have been on ah, well many of the Bigfinancials probably have been cash flow negative for a number of years which also probably is the reason Morgan Stanley and GS sought and sadly received BHC charters to have access to the Fed's Discount window. So there's 'subsidies' all over the place. The answers aren't giving agency more power and less oversight or less accountability with regard to being kept from squeezing people who are at the bottom of the social rung while the BigFinancials have had a key hand in collapsing the economy and making it difficult to develop wealth and employment. Notice both of these are now at risk. now other things have put both at risk, but letting the BigFinancials have the ability to have abusive power has been deleterious to our society and our commercial framework. Only the banks and their agency have gotten rich by people, the economy taking on more debt. As it was said in FCIC hearings, the benefactor in all of this have been the big parties that hold debt. worse however they're now also the ones with a hand they've not had in the past. with CDS they dont even have to have the risk of having made a good judgement about holding debt and which debt they hold because the CDS takes away that responsibility to reject poor quality targets for investment money. But that's the way of the maggot mentality. There seems to be a disconnect with what's a better way to spend one's time and quality of life, vrs desk bound pursuits for easy 'riches'.

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