{"id":14713,"date":"2010-05-24T20:00:52","date_gmt":"2010-05-25T00:00:52","guid":{"rendered":"\/\/www.askmrcreditcard.com\/news\/?p=14713"},"modified":"2010-05-24T20:00:52","modified_gmt":"2010-05-25T00:00:52","slug":"durbin-amendment-will-change-everything","status":"publish","type":"post","link":"https:\/\/www.askmrcreditcard.com\/news\/durbin-amendment-will-change-everything\/","title":{"rendered":"Durbin Amendment Will Change Everything"},"content":{"rendered":"

Last week, I introduced you to the Durbin amendment<\/a> to the new financial reform regulation winding it’s way through Congress.\u00a0\u00a0\u00a0 As a credit card expert and consumer advocate it was immediately obvious to me that if passed, this legislation will radically change the nature of nearly every purchase everyone makes in the future.<\/strong><\/p>\n

Since then, I have marveled at the relative silence<\/a> of the credit card and banking industry as well as their friends in Congress.\u00a0\u00a0\u00a0 Only now is the mainstream media starting to pick up on the changes that will affect us all if this passes.<\/p>\n

Ron Lieber at the New York Times is one of the best personal finance writers out there.\u00a0\u00a0\u00a0 A week after Durbin passed, he wrote this article <\/a>about the broader implications of the financial reform legislation.\u00a0 Lieber writes:<\/p>\n

The Senate bill contains an amendment with provisions that could affect how you use your credit card. You have probably encountered those irritating handwritten signs that forbid card use unless you\u2019re spending more than $10 or so, even though stores are generally not supposed to do this. The bill would allow such minimums, as long as stores were not setting minimums for, say, Bank of America<\/a>\u2019s credit card but not Chase\u2019s. Merchants would also not be allowed to set different credit card spending minimums for, say, a Visa<\/a> and MasterCard<\/a>. <\/em><\/p>\n

However, stores would be able to offer discounts based on what card a customer was using. So someone with an American Express<\/a> card, which often costs the merchant more than other cards, might pay the full sticker price of an item that costs $100, while Visa and MasterCard holders could get a $1 discount.<\/em><\/p>\n

The bill specifies that cash discounts are acceptable, as are lower prices for people who use debit cards.<\/em><\/p><\/blockquote>\n

This is shorthand for chaos.\u00a0\u00a0 Every store will have different discounts\/surcharges for various forms of payment including cash, checks, debit, Visa, Mastercard, Amex, etc.\u00a0\u00a0 The “price” on the shelf will be subject to change depending on what’s in your wallet.<\/p>\n

Will Merchants Cut Prices?<\/strong><\/p>\n

Merchant back groups like to claim that interchange fees are adding 2% to the cost of everything, but people like myself and Lieber are extremely skeptical that consumers will see any savings. \u00a0 “Somehow I doubt that merchants would throw a parade and immediately cut all prices by half a percentage point on every item on the day this bill goes into effect, if it comes to pass.<\/em>” says Lieber.<\/p>\n

How We Got Here
\n<\/strong><\/p>\n

Banks were making huge profits off of penalties, fees, and other gimmicks like double cycle billing, unit the CARD amendment outlawed most of their unsavory practices.\u00a0\u00a0 They compensated by increasing interest rates and tightening credit lines to all but those with the highest credit scores.\u00a0\u00a0 They counted on making money off of the “deadbeats” who pay their bills in full to avoid interest.\u00a0 The way they make money on people who generally pay no interest or fees is through interchange fees charged to merchants<\/strong>, which can be as high as 2-4% of a transaction.\u00a0 Deadbeats love cash back and reward cards, and banks splurged on sign up bonuses to entice them.\u00a0\u00a0 Essentially, banks were giving their best customers a cut of their interchange fees, which admittedly were far above their costs.<\/p>\n

Looking A Few Steps Ahead<\/strong><\/p>\n

All was going well until the Durbin Amendment. \u00a0 Merchants financed a portion the credit card industry, while benefiting from the money placed in consumers hands to their goods and services. \u00a0 Rewards incented\u00a0 consumers to choose their credit cards. \u00a0 In a post-Durbin world, customers would be penalized for using their credit card, making reward cards a poor value.\u00a0\u00a0 The deadbeats will cut back on credit card spending at the same time others are moving to debit cards as well.\u00a0\u00a0 Less interchange fees will mean less rewards, further devaluing credit cards as a method of payment.\u00a0\u00a0\u00a0 I would expect to see merchants promoting other, less secure,kinds of payment such as Paypal, or bank transfers.<\/p>\n

Bad News For Everyone, Except Merchants
\n<\/strong><\/p>\n

Banks will lose as, interchange fees, their current profit center will be in decline.\u00a0\u00a0\u00a0 Consumers will loses as banks try to jack up rates and fees to compensate.\u00a0\u00a0\u00a0 I don’t see any other long term outcome than the marginalization of credit cards as a form of payment.\u00a0\u00a0\u00a0 The Durbin Amendment destroys the business model for merchant supported payment systems.\u00a0\u00a0\u00a0 The future will be consumer financed payment systems.\u00a0\u00a0 One price for cash, another for Visa, another for Amex, and so on.<\/p>\n

Worse, the market suffers in the chaos.\u00a0\u00a0\u00a0 Every store, every website, every restaurant will now have an array of different policies for different forms of payment.\u00a0\u00a0 Prices will be a starting point, an estimate of how much something might cost, depending on the fine print at the cash register.\u00a0 Every quart of milk purchase will look more like a rental car contract.<\/p>\n

Merchants Win<\/strong><\/p>\n

They will get pretty much an instant 2% revenue increase for duping Congress into screwing up our markets.\u00a0\u00a0\u00a0 Thanks guys.<\/p>\n","protected":false},"excerpt":{"rendered":"

Last week, I introduced you to the Durbin amendment to the new financial reform regulation winding it’s way through Congress.\u00a0\u00a0\u00a0 As a credit card expert and consumer advocate it was immediately obvious to me that if passed, this legislation will radically change the nature of nearly every purchase everyone makes in the future. Since then, […]<\/p>\n","protected":false},"author":5,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[8],"tags":[],"yoast_head":"\nDurbin Amendment Will Change Everything<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.askmrcreditcard.com\/news\/durbin-amendment-will-change-everything\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Durbin Amendment Will Change Everything\" \/>\n<meta property=\"og:description\" content=\"Last week, I introduced you to the Durbin amendment to the new financial reform regulation winding it’s way through Congress.\u00a0\u00a0\u00a0 As a credit card expert and consumer advocate it was immediately obvious to me that if passed, this legislation will radically change the nature of nearly every purchase everyone makes in the future. 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