Understanding the Durbin Amendment

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform & Consumer Protection Act. Section 1075 of the Act, also known as the Durbin Amendment, requires the Federal Reserve Board (FRB) to implement regulations relating to debit interchange, debit networks, and merchant routing and acceptance of debit transactions.

In short, the so-called Durbin Amendment has three components:

• It requires the Federal Reserve Board to cap debit swipe fees. The Fed would determine the true cost of fraud prevention, and limit interchange fees accordingly.
• It exempts issuers with less than $10 billion in assets.
• It requires issuers to offer at least two unaffiliated networks over which electronic debit transactions may be processed.

The Federal Reserve Board issued regulations in final form on Wednesday, June 29. These regulations cap network debit transactions charges at 21 cents per swipe, plus 0.05 percent of the transaction, with the possibility of an additional cent if issuing banks comply with fraud prevention procedures.

To assist payment card networks in determining which of the issuers are subject to the debit card interchange fee standards and which are exempt, the FRB plans to publish annual lists of institutions that are above and below the small issuer exemption asset threshold of $10 billion. Those institutions are expected to hold interchange at current levels.

Lastly, the FRB set an implementation date of October 1st. On that date, card networks must honor the 21-cent cap and allow debit cards to be processed on at least two independent networks. (The effective date for the network exclusivity prohibition for issuers is April 1, 2012).