In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was created initially to lower swipe fees for business owners and holders of merchant accounts. It supposedly reduces the cost for merchants and consumers by cutting bank revenue. This revenue, normally gained by increasing swipe fees, was largely opposed to by banks for obvious reasons. Since then, the Durbin Amendment to the bill has sparked a heavy debate amongst merchants and consumers about the role government has in consumer choice and business growth.

What exactly was the Durbin Amendment and why was it considered to be such a mistake? Every transaction on behalf of a merchant and consumer incurs what is called a swipe or interchange fee. These fees are a large part how credit card processing companies and banks make their profits. Many people do not see banks as a business, but viewing them as such is a large part of successfully handling disputes with them. These fees are often included in the pricing for large retailers, and smaller retailers will often give customers the option to pay cash instead to avoid the extra charges.

The Durbin Amendment to the Dodd Frank Act, which took place in October of 2011, increased profits at large retailers and ended up cutting revenue available to banks to serve the communities. Although customers were promised lower retail prices on behalf of the amendment, no adjustments were made. In addition, rewards and free checking has become more and more of a rarity, as banks require more conservative efforts to stay profitable. In the meantime, small-time merchants are finding that transactions under $12 are increasingly difficult to accommodate with the changes. Visa and MasterCard have reportedly jacked up their rates creating an unfriendly environment for small business owners.

While merchants are having increasing trouble finding credit card merchant services at affordable rates, many have found solutions with no-contract providers. Many times, these merchant services offer free application checks that take a huge burden off the shoulders of small business owners. In this volatile financial environment, flexibility is paramount to business success.

While many credit card processing companies require contracts with a early termination clause, there are some companies that don’t charge this unfair fee. More power needs to be given back to the merchants and consumers. Many find it arguable that government legislation may not be the correct solution. We may find many further appeals to this amendment in the future, as many banks, merchants and consumers are disgruntled about the whole initiative.
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Guest post is provided by Charge.com Payment Solutions, Inc., providing credit card processing services to small businesses. Visit their website for more information.