Small Business Takes on the Dodd-Frank Act: Part I

The Dodd Frank act is a point of contention with the recent changes.  With 16 sections and a total of 16 titles containing 243 rules which require 67 studies and 22 periodic reports, this is an immense beast. As of May 25th, a repeal of the Durbin Amendment had been slipped into the Republican anti-Dodd Frank bill. Named after Richard Durbin, Senator of Illinois, the Durbin amendment put price control deemed by the Federal government as “reasonable and proportional to the cost” on fees which banks and credit unions charge retailers for debit card purchases. The purpose of this series is to track the immediate impact of big-picture policy changes on small businesses.

Calculations of Federal Reserve data shows that retailers took in $42 billion because of the Durbin Amendment: the savings are as good as the number sounds for larger businesses and those that sold bigger ticket items. However small businesses are feeling the impact of this form of price control. As Harry Alford, cofounder and president/CEO of the National Black Chamber of Commerce, explains

“Before the Durbin Amendment, interchange fees were negotiable, which was a good thing for mom and pop stores. But government regulation as dictated by the Durbin Amendment has set a floor as well as a ceiling for these fees, meaning that some small retailers are paying more for these transactions now than they ever did before the law was drafted.”

So while there are large savings, small businesses did not necessarily experience a positive impact from the Durbin Amendment.  The savings that price controls were supposed to incur were meant to be felt by consumers were nearly not present. Since so many businesses have been losing free checking as well, these businesses are now passing through fees to consumers who end up shouldering the higher costs.

With all that we’ve covered, Jeb Hensarling, Republican chairman of the House Financial Services Committee, said he agrees with the removal of the provision that would have capped prices stores pay banks when consumers use debit cards. With the huge amount of conflicting interpretations on the who’s who with regards to the Durbin Amendment’s impact, one thing is very clear: large businesses are saving billions while retaining their old pricing, and struggling families are losing financial incentives with America’s small businesses. There is the chance that repealing the Durbin Amendment could possibly raise prices further, but we must also consider the fact that forcibly limiting those costs in one place can effect in costs increases elsewhere for those who needed them lowered the most. Stay tuned as we continue to cover the small business impact of the Dodd Frank act.

Matthew Koren is the President of Swiftly Paid, a credit card processing and payroll service provider located in Portland, OR. He runs this company in addition to his management consulting practice helping clients implement innovative strategic solutions to business critical issues. You can contact him by filling out the Contact Us page, or by calling 503-765-6940.