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Customers Say Retailers Are Not Living Up to Durbin Amendment Promise

Retailers, represented by the National Retail Foundation, promised that consumers would benefit when retailers, particularly small businesses, were to benefit from regulated interchange (swipe) fees charged by Visa and MasterCard. The regulation, commonly called the “Durbin Amendment to the Dodd-Frank Act,” would lower the cost for businesses who were subject to an effective duopoly between Visa and MasterCard, paying a percentage of every debit card transaction to the processor.

These fees are higher for transactions with any card that is more than just vanilla, and retailers have dealt with this high cost of doing business in an age where an increasing number of transactions are handled electronically mainly by increasing the costs of products overall.

Cashier checkout at WalmartThe National Retail Federation claimed last year that consumers would see the benefit of reduced interchange fees. Regulated cards — and not every issuer is subject to this regulation — carry interchange fees with a maximum of 0.05% of the transaction plus $0.21. The standard fee for a non-regulated card (reviewing Visa’s schedule of interchange reimbursement fees as of October 2011 [pdf]) is 1.90% of the transaction plus $0.25 for every swipe of the card.

If retailers intended for the consumer to benefit, the only way for that to happen would be in the form of lower prices. Here are a few comments from representatives of the retail industry, as compiled by the Electronic Payments Coalition:

  • “The reform will save each franchisee in the country almost 50% of the cost of a debit transaction, which ultimately will be passed on to the customer… It is simply a fact that lower merchant costs will lead to lower consumer prices.” (Bruce Maples, Chairman, National Coalition of Associations of 7-Eleven Franchisees)
  • “Merchants are ready to pass lower swipe fees along to consumers in the form of discounts and other benefits as soon as reform goes into effect…” (Mallory Duncan of the National Retail Federation)
  • “Merchants are making a wide variety of plans to pass the savings along to customers who use debit cards, ranging from discounted prices to benefits and increased services such as free delivery at an appliance store…” (National Retail Federation press release)
  • “Secondly, to the extent that a merchant receives a benefit, I do believe that from a competitive standpoint, they will bring that through to the consumer.” (Robert Donovan, Corporate VP & U.S. Assistant Treasurer, McDonald’s

If you’ve been shopping throughout the past year, particularly since October 1, 2011 when the regulation went into effect, you probably haven’t noticed prices decreasing. In fact, I would say prices overall, from my anecdotal experience, have continued to rise. Recent research confirms this suspicion, to the tune of a 1.7% increase across a list of common items.

According to a consumer survey conducted by Ipsos Research, only 7% of consumers believe that retailers are passing these savings onto customers. 76% of retailers have increased their prices or kept them constant since October 1, 2011.

At the same time of these increases for customers, retailers have saved $2.28 billion as a result of the regulation. When we discussed this on shizennougyou, most readers didn’t expect retailers to lower prices. Why should they? Small retailers have the opportunity to reduce their costs while not affecting revenue by keeping prices steady. That’s how businesses can survive in difficult times. Large retailers may have healthier profits due to volume, but the ability for large retailers to offer low prices is their strength, and don’t have the margins to reduce prices much.

Could it be possible that these promises of savings for the consumer were promoted by the industry to garner more public support for regulations?

Photo: Walmart Stores
Electronic Payments Coalition

Published or updated February 22, 2012.

About the author

Luke Landes is the founder of shizennougyou. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 16 comments… read them below or add one }

avatar 1 Anonymous

“Could it be possible that these promises of savings for the consumer were promoted by the industry to garner more public support for regulations? ” You were laughing out loud when you wrote this question weren’t you?

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avatar 2 Anonymous

It’s not surprising at all that retailers didn’t reduce their prices. If they didn’t have credit card fees to justify higher prices, then they will blame inflation or high prices of other services/goods. Plus some may be worried about starting a pricing war between competitors.

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avatar 3 Anonymous

I looked to see how much of that 1.7% increase might be attributable to inflation – January CPI index was 227.51 and October 2011 was 226.8, so around .31% (CPI-U). It does seem strange that consumer goods would outpace the overall inflation rate by such a large clip.

Nice article… hopefully you’ll continue to follow up on this?

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avatar 4 Luke Landes

I’m not surprised. The CPI-U tends to be lower than the increases people tend to experience first-hand. I’m not sure what was included in this particular measure, but consumer groups often try to come up with a basket of goods to track that is more typical of consumer spending.

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avatar 5 Anonymous


Ever played with the Billion Prices Project at MIT? Real time inflation measure, based on the Internet prices of a massive collection of goods. Interesting stuff!

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avatar 6 Luke Landes

I haven’t seen that before. Thanks for sharing!

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avatar 7 Ceecee

We weren’t really expecting them to lower prices, were we? That being said, I am glad if it helps small “mom and pops” who are struggling.

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avatar 8 Anonymous

Regardless of the law change, merchants pay the same rates they’ve been paying because they work with a merchant processor. The merchant processor works with the bank. “Mom and pop” shops pay whatever they negotiate with the merchant processor. Even if the law changed, it doesn’t mean the merchant (“mom & pops”) see any change in their monthly statement. It is the merchant processors that see the numbers change and only if they currently with a “big bank” as defined as having assets of $10 billion or more. I realize there’s a lot of factors to consider, but the original post and commentary neglect how all these factors interact.

Inflation and the desire for profit will require prices to go up, but merchants will try to hold the line as long as they can. When you have additional profit, that hopefully allows you some room for price control over time.

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avatar 9 Anonymous

I know if I were a small retailer I certainly wouldn’t lower prices unless I absolutely had to. Would you? Retailing is a difficult enough industry to turn a profit as it is.

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avatar 10 Anonymous

I haven’t noticed a change. However, I did notice that Arco (a pretty cheap gas station) has stopped charging credit card users an extra $0.45 per transaction.

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avatar 11 Anonymous

It’s sad (but not surprising) that retailers haven’t dropped their fees.
I think the credit card companies make enough money off of INTEREST alone. No need to charge retailers (and ultimately credit card users) even more!

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avatar 12 wylerassociate

I’m not surprised that retailers haven’t dropped their fees so far. I want to see if this trend continues for another 2-3 years & if the issue is brought back up again in congress.

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avatar 13 Anonymous

Regulation that doesn’t achieve the stated goal? Shocking!!! I wonder how much Durbin got from the National Retail Association for introducing the amendment.

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avatar 14 qixx

There is one (and only one) place i’ve seen a reduction in fees have a benefit. Concert and show tickets. Most concert ticket sales tack on a transaction fee that happens to be the amount the card processors would charge. Some times down to the penny. They have always been vague about the fee purpose (they say what most the other fees are for) but is always seemed to be me paying to use my card to buy the tickets. This transaction fee seems to have dropped recently. Following my assumption that it was always me paying the interchange rates makes sense.

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avatar 15 Anonymous

It’s not surprising at all that retailers didn’t reduce their prices, but isn’t the state’s job to make sure they follow the regulations?!

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avatar 16 Anonymous

This new rule of durbin amendment is helpful for many peoples. Online payment is quick and convenient for bank customers. Reduces Debit Fees make customers more happy.

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