How the Durbin Amendment Changed Mileage Earning Checking Accounts and Debit Cards

The end of most debit card rewards programs, and the recent imposition of monthly fees on mileage-earning checking accounts at BankDirect, are the result of the Durbin Amendment.

NerdWallet runs an interesting piece on the effects of the amendment, pointing out its winners and losers (some of which may be surprising, but others will be familiar to those who pay attention to the points game and how it has been changing as a result of this legislation). NerdWallet interviews law professor Todd Zywicki, who blogs at Volokh.com where I first found reference to the article.

The law was supposed to help small retailers by providing them relief from debit card interchange fees, but the unintended consequence has been higher prices as consumers shift towards credit instead of debit.

The law was supposed to help credit unions, which were generally exempt, but it’s pushed unprofitable checking accounts to them which has raised their costs.

And it was supposed to help poor consumers who lacked access to rewards cards, who supposedly saw higher prices from interchange fees without receiving rewards in return. But by raising the cost of financial products, those customers are less profitable for banks are they’re now seeing fees for checking accounts without minimum balances or other financial business with their institutions — so they either see higher costs or get pushed out of the banking system.

I’ve never been much of a fan of debit cards because as someone who pays off my credit cards in full each month I’d rather track my checking account balance with a single payment each month rather than recording each individual transaction (I actually do balance my checkbook!) but mostly because of the greater consumer protections afforded to credit cards. If there’s fraudulent activity on my credit card, I notify the company and charges are suspended while they’re investigated. If the money is already gone from a checking account due to debit card fraud any re-instatement in funds is more or less at the beneficence of the bank. I don’t like being in that position.

So I rather figured that the law wouldn’t impact me directly, except that it has — a free business checking I had now has a minimum balance to avoid fees. A secondary personal checking account that used to avoid fees with $50 direct deposit now requires a $100 direct deposit. And my BankDIrect checking account which has profitably been earning me American Airlines miles since July 2003 will now cost me $144 per year regardless of account balance.

NerdWallet offers this conclusion about the winners and losers of the Durbin Amendment:

Which brings us to the winners in the interchange fee battle: alternative financial services providers like Walmart, Western Union and Green Dot. Banks (and credit unions) face the cost of holding customers’ money, but Walmart, et al can charge for a la carte services like check cashing and money orders without keeping a single deposit. Unfortunately, these services are often a poor deal for consumers: though the fees are generally well-disclosed and upfront, avoiding the financial system is more costly than remaining within it. For example, the popular prepaid Walmart MoneyCard can easily cost more than $10 a month, while its check cashing services run at $3 per, adding up to well over Bank of America’s MyAccess checking account. We’ve written extensively on the disadvantages of being unbanked; we fear that higher checking fees will swell the ranks of Americans outside the financial system. In trying to pick favorites, the Durbin Amendment may have only exacerbated their misfortunes.