What is The Durbin Amendment?

The Durbin Amendment is a provision within the Dodd-Frank Wall Street Reform and Consumer Protection Act, a major financial reform legislation enacted in the United States in response to the 2008 financial crisis. The Durbin Amendment, named after its sponsor Senator Richard Durbin, was included in the Act to address the issue of interchange fees, which are the fees that merchants pay to banks and card issuers for processing debit card transactions.

Before the Durbin Amendment, interchange fees were unregulated and often criticized for being excessive, disadvantaging small businesses, and increasing costs for consumers. The Durbin Amendment aimed to address these concerns by:

1. Capping the amount that banks and card issuers with $10 billion or more in assets could charge merchants for processing debit card transactions. The Federal Reserve, as a result, established a cap of 21 cents plus 0.05% of the transaction amount, with an additional one-cent fraud prevention adjustment allowed under certain conditions.
2. Prohibiting exclusivity agreements between payment card networks and debit card issuers, which means that issuers are required to offer at least two unaffiliated payment networks for routing transactions. This requirement aims to increase competition among payment networks and potentially lower costs for merchants.

The Durbin Amendment has been a subject of debate since its implementation. Proponents argue that it has helped to lower interchange fees and increase competition, while critics claim that it has led to higher banking fees for consumers, reduced free checking options, and limited the growth of smaller banks and credit unions.