Durbin Amendment May Foster Deceptive Credit, Debit Processing Charges
The Durbin Amendment into the Dodd-Frank Wall Street Reform Act takes effect on July 21, 2011. One of the critical points from the Amendment requires large financial institutions to cap their debit card interchange fees. Presently, the scheduled cap is 12 cents per transaction. However, that figure may change before July 21.
Applies to Interchange Fees, Just
Many observers debate the merits of the Durbin Amendment. Whether one thinks the amendment is great or not, Congress is trying to help consumers and merchants alike. Unfortunately, Congress does not appear to comprehend the credit card business; the Durbin Amendment regulates interchange fees, rather than the charges merchants pay to their merchant account providers. Though your merchant account provider won't need to pay more than the capped debit interchange fee, the supplier doesn't need to pass any fee discounts to you, the merchant. Many merchants won't ever see a cent of the reduction. Worse yet, others might be duped into higher overall rates due to clever sales tactics.
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As I mentioned in "Understanding Credit-Card Fees, Part 1: The Basics," my last article here, merchants don't register for card processing directly with Visa and MasterCard. Visa and MasterCard are similar to car makers. They construct their products and advertise their brands. If you would like to purchase a car, you will need to visit an auto dealership. Similarly, if you would like card processing for your business, you will need to speak with a merchant account supplier. And like automobile dealerships, some merchant account providers are more honest than others.
On July 21, you have the chance to discover how honest your merchant account provider is. I've read credit/debit industry articles and been on conference calls where key individuals in merchant account organizations have stated that the Durbin Amendment could be a blessing because they do not need to pass the fee reduction for their merchants.
Read Contract Carefully
Many merchants will receive Durbin-Amendment-fee-reduction literature and sales demonstrations over the upcoming weeks and months. Some merchant account providers will truly give you 100 percent of the fee reduction to which you're entitled. Some can tempt you into something worse.
By way of instance, I just reviewed a merchant account supplier's proposal to a merchant. The proposal was for all the merchant's credit and debit card processing company. It had been offering"interchange plus" pricing at only 5 cents over"interchange and pass-through fees," the wholesale price paid by the merchant account supplier. This appears to be a wonderful price; in the speed, an ecommerce merchant would just need to cover 1.91 percent +17 pennies on a normal Visa credit card.
But there was more in the proposal. Near the conclusion of the contract it says that the merchant must pay an additional 2.59 percent + 10 cents in the event the transaction doesn't qualify. Unfortunately for ecommerce merchants, it's possible that 100 percent of the transactions do not qualify. So instead of a excellent speed, an ecommerce merchant could be enticed into paying 4.50 percent + 27 cents on a fundamental Visa credit card. And that's just a simple credit card. The other credit cards would cost much more under this pricing strategy.
Analyze Proposed Fee Reductions
Don't be surprised if your existing merchant account provider informs you and says something like"because you're a valued merchant, we're going to decrease your rate." Not all providers will give merchants 100 percent of the eligible rate decrease. If providers really reduce debit card processing fees to the capped limit, a number of them might raise charge card charges to offset some of their gap. Assess the fee reduction they provide thoroughly before you agree to it. And do not lock yourself into a different long-term contract -- regardless of how much of this fee reduction you actually get.
If you find the words"qualified,""Qual," Mid-Qualified," Mid-Qual,""Non-Qualified,""Non-Qual" in your merchant statement, get prepared to do your own homework, if your supplier offer to reduce your prices or change you to"interchange plus" pricing. If you find those words, you're on a tiered pricing program; there are also tiered pricing schedules that don't use these words. In "Notable Views: Credit Card Veteran on'Onerous' Processing Rates," I explained why I think tiered pricing programs benefit merchant account providers, not merchants. However, as explained in the case above, you can't simply think that the"interchange plus" prices being pitched to you is for all card types, or doesn't have inflated costs, or will really save you money. You want to analyze all of the information presented you.
Coming Up
I my next post, I will provide certain measures to be certain that you get 100 percent of any Durbin Amendment debit-card charge decrease. I will also identify some warning signals your merchant account provider isn't being straightforward. In the meantime, prepare yourself to listen to some crazy sales pitches and read a few outrageous sales security about how your rate could be lowered to maybe 1.0 percent or 0.50 percent, or 12 cents, or even 5 cents over wholesale.
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