The Dodd-Frank Wall Street Reform and Consumer Protection Act of
2010 certainly sparked fierce debate about government regulation,
consumer choice, innovation and entrepreneurship. The Durbin
Amendment, a last-minute addition to the Dodd-Frank Act,
drastically lowers swipe fees - the fee charged to merchants every
time a customer pays with plastic - on debit cards issued by big
banks, cutting into the banks' revenue while, presumably,
lowering costs for merchants and therefore consumers. The reduction
in fees was significant: the Amendment reduced fees to 24 cents
from a previous average of 43 cents, according to a Federal Reserve
The Durbin Amendment became effective nearly a year ago, on
October 1, 2011, and the ramifications are becoming apparent. Banks
are offering fewer free or low priced services to compensate for
lower revenues, and since prepaid debit cards aren't covered by
Durbin, those cards are becoming increasingly popular. Hotels, as
merchants, are significantly impacted by the Durbin Amendment, and
are continuing to react.
Lower swipe charges
Senator Durbin, speaking to a group of reporters in Nashville
before the effective date of the Amendment, explained that the new
law would be good for merchants: "The retailer will be more
profitable. That's what's behind this." Durbin said
that the amendment was designed to protect retailers such as gas
stations, for instance, who often lose a lot of their profit to
debit cards. Durbin added that retailers were likely to pass on
their profits to their customers, at least those retailers who are
competitively trying to entice you into their stores.
So the law was designed to protect not only consumers, since
lower swipe charges should result in lower prices for products and
services, but also business owners, especially those who depend on
numerous small transactions to survive.
New law lets merchants recover processing
Because the Durbin Amendment allows merchants, including those
in the hospitality industry, to recoup at least some of the fees
they pay to card processors, it should benefit the industry. This
may encourage some hotels to rethink their prior refusal to accept
debit cards because the costs were high, and they could not recoup
those fees. That should expand the use of debit cards and,
consequently, provide at least some additional incremental revenue
for the industry.
To charge or not to charge
On the other hand, hotels face a dilemma because consumers are
likely to object to paying a fee for something that was previously
free (or at least seen as free, since the cost of card fees was
built into the cost of rooms, food, beverage and services). Hotels
will have to make the decision to charge, or not charge, card
transaction fees. Hotels could benefit from the additional revenue,
but they will add yet another line to an already complicated
checkout bill, which could alienate some guests. Moreover, some
states (like California) still prohibit charging a premium for use
of a card, as opposed a cash transaction. While not impossible, it
may be difficult to incorporate these fees over large networks.
Thus, in the short run, hotels may not be able to recoup
In addition, the reduction in credit card and debit card service
fees are expected to reduce revenues to the banking industry;
banks, in turn, are expected to recover some lost income from their
customers -- both individual and institutional. Hotels could face
additional banking costs, as well as the possibility that some
consumers may be stretched.
GOOGLE Wallet and beyond
The ultimate impact of the Durbin Amendment make take some time
to determine, but there are also other payment issues that could
have a significant impact on the hospitality industry. For
instance, hotel owners and operators should consider how new
payment systems, such as Google Wallet, a mobile payment system,
impact their operations. These transactions, which are becoming
more and more popular, are likely to have a longer-lasting impact
and require more adaptation in operations. They add additional
layers of complexity with another party, additional hardware and
software, and issues on consumer security and privacy.
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The Consumer Financial Protection Bureau announced that it had settled enforcement actions against four insurance companies in connection with alleged improper payments between the insurance companies and mortgage lenders.
Since opening for business in July 2011, the Consumer Financial Protection Bureau ("CFPB" or the "Bureau") has focused on regulating consumer financial markets and protecting consumers through studying markets, educating consumers, and enforcement.