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Monday, August 01, 2011

Revisiting what Dodd-Frank reform act does for you

(More provisions of the Durbin Amendment)  Purchases with debit cards are definitely an advantage for retailers and service providers, large and small. Once a debit card purchase is authorized, the funds are guaranteed to be received with the risk of nonpayment totally eliminated.

The funds are automatically, electronically deposited to that business' checking account without an employee making a trip to the financial institution to make a deposit of checks or cash.

U.S. Sen. Jon Tester, D-Mont., introduced legislation that would have delayed implementation of the amendment by one to two years while additional studies were completed. However, on June 8, the Senate voted to refuse to delay the new rules that would cut the fees banks and credit unions can charge retailers to process debit card transactions.

On June 29, the Federal Reserve Board voted to set a higher-than-expected limit on debit card transaction fees from the originally proposed 12 cents per transaction to 21 cents per transaction. This limit is still 52 percent less than the previous average of 44 cents per transaction.

American Bankers Association CEO Stephen P. Wilson said, "the Federal Reserve has taken a significant step toward reducing the harm that could have resulted from the proposed rule."

On the other hand, the National Retail Federation called the Federal Reserve's new regulations "a deep disappointment" because they didn't believe it had gone far enough to limit the fees.

Some believe the Durbin Amendment was passed to punish the nation's largest banks - which receive most of the debit card fees - for taking government bailout money and then paying bonuses to their CEOs.

While private business owners and consumers may feel disconnected from this debate, it is important to be aware of the effects the amendment will have on banks and credit unions, retailers, and on consumers.

The amendment provides a windfall of savings to national retailers like Walmart and Home Depot, as well as significant savings to small business owners who have been hardest hit by the Great Recession. Some economists have speculated that national retailers would decrease prices to compensate shoppers for their lower costs. That will be something to watch.

The amendment will decrease revenues for banks and credit unions. Consequently, consumers may see an increase in fees financial institutions implement to compensate for the lower revenues they will experience. For example, the days of free checking accounts may go away.

The lower transaction fees outlined by the Durbin Amendment will be implemented in October and between now and then, banks and credit unions will be considering different ways to make up for the reduction in debit card transaction fee income. What is an account holder to do if his/her checking account fees go too high?

A community bank CEO was recently quoted advising consumers to protect themselves by shopping around and comparing available options as all bank and credit union offerings are not the same.

I thoroughly support that refrain!

Contact Fred Dawson Jr., executive vice president and chief credit officer for Commerce Bank of Arizona, at fdawson@commercebankaz.com or (520) 325-5200.

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