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Consumers Don't Know the Good News on Durbin Rule

NEW YORK ( BankingMyWay) -- This week TheStreet detailed the impact the so-called "Durbin Rule" had on consumer prices. Enacted in September 2011, the rule limited the amount of debit card fees big banks could charge U.S. merchants.

While merchant groups say the rule has helped keep debit card fees down, consumer advocates say retailers have not passed those savings on to consumers. Now a major debit card payment processor weighs into the debate, saying consumers may be getting a better deal than they might think.

Bob Baldwin, vice chairman at top payment processor Heartland Payment Systems (HPY - Get Report), said in comments to TheStreet that the Durbin Rule is a net positive for businesses and consumers.

"While some skeptics claim that savings resulting from the Durbin Amendment have yet to materialize for American consumers, we believe both business owners and consumers are feeling the benefits of lower debit card swipe fees," he says. "While it is not possible to prove how much of the savings have ended up in the pockets of consumers, we have seen repeated demonstrations that our merchant customers across the country are using the Durbin savings in a variety of ways that are impacting consumers -- even though they might not realize they are benefiting from the reform."

Baldwin says Heartland has surveyed merchants at the 250,000 locations the company does business and reports the following results from debit card reform:

  • Merchants are hiring additional staff (or avoiding letting any go).
  • They are opening new locations.
  • They are investing in critical items such as new technologies, equipment, fixtures and delivery cars.
  • They are diversifying product offerings, maintaining pricing and offsetting rising fuel and food costs.

"We believe that consumers are not only benefiting from these customer service enhancements, but in many cases, our merchants have been able to avoid raising prices due to these debit savings," Baldwin says.

More specifically, Baldwin points out how merchants are using the savings culled from the Durbin Rule to help consumers and their companies:

  • John Bertram, owner of Stuft Pizza Bar & Grill in La Quinta, Calif., has been able to keep menu pricing the same for consumers due to these savings -- despite rising food costs.
  • Jon Swede, owner of Po Boys in Tallahassee, Fla., recently invested in a new freezer and gave raises to his staff.
  • Steve Lapke, operations director of Sharp Oil in Covington, Ky., is pouring every dollar in savings back into his business in the form of new technology (hardware and software) and opening a new location.
  • Ken Moore, owner of a restaurant called Midtown Sundries in Denver, N.C., said the savings have actually helped him stay in business in this challenging economy. The monthly savings helped him offset food costs, which rose 7% from last summer to this one.

  • Tom Bruins, owner of The Original Pancake House in Maple Grove, Minn., has improved the dining experience for his customers by renovating the patio area.

Debit card reform has indirectly benefited consumers in other ways, Baldwin says.

"We have found that lower debit card processing costs have also encouraged merchants that weren't previously accepting cards to start offering the convenience to customers," Baldwin says. "Indeed, the recent proliferation of mobile acceptance devices owes its growth not only to the capabilities of smartphones, but also to the substantial reduction in regulated debit rates, which allow for more attractive pricing for the micro-merchants that are adopting these solutions."

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