The Durbin Amendment to the Dodd-Frank Act can be confusing to both holders of internet merchant accounts and consumers. Why such a negative reaction to its effects? Wasn’t it designed to protect merchant account holders and consumers from outlandish swipe fees? Unfortunately, the Durbin Amendment didn’t deliver as promised.

Many feel the amendment to be the policy maker’s folly in an attempt to level the playing field for everyone at best, and a disguised effort to promote credit card processing company success at its worst. Knowing exactly how the Durbin Amendment has functioned in the financial sector in plain language will help small business owners make informed decisions about how to accept credit cards from their customers.

Before explain the specifics of the amendment and how it applies to credit card merchants, it’s important to know exactly how credit card processing works. Any time a consumer uses their credit or debit card in a store, or online, an interchange fee is required to be paid by the merchant. Also known as the swipe fee, it was initially created to protect consumers against fraud, but has quickly turned into a profitable venture for banks.

The perceived security risk determines to rate of these fees including what card is being used, the method of payment and what kind of business the merchant is involved in. Debit cards, PIN transactions and large retailers are assumed to have the lowest risks and by consequence incur the lowest processing fees. Small business owners, online retailers, wireless credit card processing and rewards cards are known to have the highest fees associated with them.

Although those in favor of swipe fees argue that they cover the risk of fraud and overhead costs, merchants feel that too much power rests with processing companies and that they are unfairly being profited from. However, those in favor also argue that competition among banks has caused them to use these profits to benefit merchants by offering free checking accounts and incentive rewards.

Proponents of the amendment feel it was designed to protect small time merchants and the poor as these fees take up a large portion of budgeting . Many believe this amendment has failed to accomplish what it set out to do as banks no longer see rewards and free checking services as profitable, and retailers still seem to be requiring the same charges. Many are now advocating for a repeal of this act, even though those who designed it still stand behind it.
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Guest post is provided by Charge.com Payment Solutions, Inc., providing online payment processing services to small businesses. Visit their website for more information.