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Latest Durbin Ruling: Who Pays?

A U.S. judge recently rejected the Durbin Amendment, saying the Federal Reserve inappropriately inflated debit card transaction fees and failed to provide merchants with multiple, unaffiliated networks for each debit card transaction.

This ruling affects billions of dollars as debit card usage has grown significantly over the past five years.  It's all being done in the name of the consumer. But is the consumer the one ultimately footing the bill?

Assuming the federal government has the of best intentions, its intervention in these matters is done to protect the consumer and help prevent one side from taking advantage of the other. The banking community and the related associations had created a revenue stream via the growth of debit card transactions, at the expense of the merchant taking payment from the consumer. But what typically happens when a merchant incurs additional expenses?  They pass them on to the consumer buying goods and services. A cost such as this, baked into every day prices, is usually unnoticeable. But there is a breaking point.

The merchants felt the transaction fees to be too high, and countered by filing suit against the guts of the Durbin Amendment.  Now that a judge has ruled in their favor (if upheld), it would reduce a profit line banks have come to rely on as other areas of revenue have been pinched and squeezed. What typically happens when a bank incurs additional expenses?  They pass them on to the consumer who uses their banking services. This cost is more noticeable, as the banks will look to make up the loss in profit by eliminating benefits the consumer has grown to know, such as free checking.

Where the ball lands in this legal volley between financial institutions and merchants will probably end up being more beneficial for one versus the other. But when the dust settles, the consumer will be the one left holding the bill. It then begs the question:  Is it better to have less outside intervention into these situations (ie the federal government) and let the market play itself out?

Latest Durbin Ruling: Who Pays? by Sean Guilfoyle