The Durbin Amendment: Swipe Fees Impact On Credit And Credit Scores

By Tom Quinn

The past year has seen quite a bit of focus and serious lobbying action in Washington regarding pending legislation under the Durbin amendment.  Among other things, this legislation affects the amount of money your bank receives from the retailer when you use your debit card to pay for the transaction.

Many consumers may be surprised to discover that, for example, the supermarket doesn’t keep the entire $20 you just paid for your groceries when you use your debit card for the purchase.  The supermarket pays the bank a fee (called a swipe fee) each time you use a debit card to pay for a purchase — $0.44 cents on average is paid to the debit card issuer.  When the Durbin amendment goes into effect in July 2011, that average fee is expected to drop to roughly $0.12 cents on average.

[Related Articles: The Durbin Amendment]

A couple cents drop may not sound like a big deal, but Americans use their debit cards to make a lot of purchases. A drop in swipe fee revenue from $0.44 to $0.12 (on average)  is estimated to cost the banking industry $12 billion a year in lost fee income.  What this means for consumers come July and beyond is currently unknown.

One possibility is that merchants will pass the savings on to consumers through lower prices.   Another option is that they won’t make any changes to their prices and pocket the savings themselves.  Most retailers have not shared what they plan to do with this extra savings and there are no rules in the legislation telling retailers what they must do with this incremental revenue.

Be ready as the days of free checking may soon be a distant memory as it is likely that banks will enact new checking and debit account features and fees in an attempt to make up for the $12 billion of lost annual revenue.

Will the Durbin amendment affect your credit report and credit score?

The good news — there is no direct impact on your traditional credit report/score as your checking and debit account information is not reported to the credit reporting agencies (Equifax, Experian and TransUnion). 

There could be indirect impacts depending on how the enactment of this legislation causes you to change your mode of payment.  For example, if your bank imposes fees to use your debit card and you opt to pay for most purchases with your credit card instead, the incremental balances on your credit cards reported to the credit reporting agencies could make you appear more indebted – and thus potentially reduce your score.

Of course, paying with cash is another alternative and doing so won’t hurt your credit score.

Tom Quinn is Credit.com’s Consumer Credit Expert. Tom shares invaluable insight to navigating the often complicated world of credit scoring, credit reporting and credit granting industry practices. Formerly with FICO (Fair Isaac), MDS (currently Experian) and Citibank, Tom has more than 20 years of behind the scenes experience in the credit industry and is currently Vice President of Scoring at Nomis Solutions.

This post originally appeared at Credit.com.

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