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Table of Contents

Lead Story

New federal watchdog eyes prepaid cards


Industry Update

Heartland nearing closure on breach after favorable ruling

Forensics expert, Google differ on Wallet security

The future of contactless payments

Payment predictions for 2012


PCI SSC rolls out new SIGs

Highlights from Inside Microfinance

Patti Murphy
ProScribes Inc.

Show us the money! - Growing business online by accepting more forms of payment

Brian Crozier

Research Rundown

Online shopping up for holiday season 2011

Lessons from the lemonade stand

Selling Prepaid

Prepaid in brief

Banks exhibit 'appetite for prepaid'

The game card opportunity beyond U.S. borders


Street SmartsSM:
The Durbin Amendment: Bust or boon for the industry?

Bill Pirtle
C3ET Credit Card Consortia for Education & Training Inc.

Kick off 2012 with a plan for success

Peggy Bekavac Olson
Strategic Marketing

Keep it honest in 2012

Jeff Fortney
Clearent LLC

PCI: The year in review, the year to come

Tim Cranny
Panoptic Security Inc.

Company Profile

RocketPay LLC

PAX Technology Inc.

New Products

Going global with online payments

Global Gateway e4
First Data Corp.

A platform for multichannel retailers

Multi-Channel Retail Management Suite
Retail Anywhere


Work through discomfort, expand your reach


10 Years ago in
The Green Sheet


Resource Guide



2012 Calendar of events

A Bigger Thing

The Green Sheet Online Edition

January 09, 2012  •  Issue 12:01:01

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Street SmartsSM

The Durbin Amendment: Bust or boon for the industry?

By Bill Pirtle

The back and forth debate within the industry over the doom and gloom predictions of the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 changed abruptly in early November 2011 when something big happened. Agents writing accounts to tiered pricing received their first post-Durbin rule residual checks.

Early debates hinted the amendment was the first nail in the coffin of the ISO and merchant level salesperson (MLS). However, many on GS Online's MLS Forum knew immediately that, while hitting the banks hard, the Durbin Amendment would not affect the card brands or agents selling on Interchange Plus and could greatly benefit ISOs and MLSs writing tiered rates.

A few, like myself, were incensed that Sen. Dick Durbin, D-Ill., would blindly follow lobbyists into a system where price controls would be welcome.

Although this legislation does not directly hurt merchant services, it sets a dangerous precedent that could eventually end the industry. If Congress comes back years hence and sets a flat limit on the amount merchants can be charged, there will be no room for ISOs and MLSs.

Several ISOs are developing training programs for their agents on how to sell under the current rules. At the July 2011 Midwest Acquirers Association conference just outside Chicago, industry consultant Matt Clyne called those who sold Interchange Plus under the new rules "idiots." On its face, Matt and the others have a great point; if you sell on tiered, you can make a lot more money ... for now.

The problem with such strategies is the seeming race to the point of no margin (or profit) by inexperienced agents and some ISOs. The big ISOs are betting merchant volume will allow for profits with lower margins per account, but what is the motivation for smaller ISOs and MLSs?

In April 2011, I wrote a brief e-book called Dick Durbin is Wrong: Errors Behind His Amendment to Dodd-Frank (available in several formats for no charge at In the e-book, I outlined some predictions, of which many came to pass.

Since the amendment's enactment, banks have sought new revenue sources and ended debit reward programs. Also, the small-ticket interchange (at least for regulated debit) rate category was eliminated, and merchants receiving cost reductions did not lower their retail prices.

The topic to consider now is, what will we do if (or when) the Durbin Amendment is repealed?

Did Congress learn its lesson?

Recent articles indicate that change is coming. Sen. Bob Corker, R-Tenn., in an Oct. 25, 2011 Politico article (, wrote:

Six reasons for repeal

Richard A. Epstein, a New York University law professor who consulted for TCF National Bank in litigation against the Durbin Amendment, wrote a New York Post article listing six reasons why Durbin should be repealed. The article included the following:

The complete article can be found at

Unintended consequences come to fruition

A Wall Street Journal article ( brought to the attention of the MLS Forum by BANKCARDREP listed one of many "unintended consequences" that we all predicted would happen.

By cutting interchange on regulated debit, Congress set in motion the response of terminating the small-ticket interchange for the regulated debit rate category. All regulated debit cards now have the same interchange of 0.05% + $0.22 (including a penny for fraud).

Consider getting two burgers and a drink at McDonald's for $3.00. Before the Durbin Amendment, the interchange cost of the transaction was about 7 cents using my regulated debit card. Now, the interchange cost is 23 cents.

If Sen. Durbin and the lobbyists really did not anticipate this, they need to be put out to pasture. And those thousands of McDonald's franchisees and others that just had their costs effectively tripled by Sen. Durbin and the National Retail Federation need to reconsider their membership in the NRF.

What does an organization that, due to its lack of foresight, just screwed its members that deal in low-dollar transactions do for an encore? Well, in mid-November 2011, the NRF filed a federal lawsuit against the Federal Reserve, according to a Dec. 8 article in The Green Sheet ( The basis of the argument is that the Fed exceeded its authority to allow for fraud expense.

I look forward to the friend of the court briefs filed in support of the call to "void the rule" to establish the interchange rate. First, I would expect TCF National Bank to file paperwork.

Sen. Durbin said the bill was meant to address "swipe" fees, but the Fed applied it to all transactions, including keyed and Internet transactions (where risks are much higher). Then what about consumers who expected lower costs? Perhaps a lawyer would start a class-action suit for the benefit of millions of consumers who are paying higher fees.

In another fun twist for the short-sighted NRF, if the rules are set aside, the card brands will raise interchange again. Think about it, the Durbin Amendment placed the power to set the rate solely with the Fed, which acted on the rules it was given to work with. The Fed's board fulfilled its legal obligation.

If the Fed rule is overturned, there is no mechanism in place short of a court order to make it create new rules. It would take a new law to restore the authority that the court removed.

So, let's all wish the NRF luck in its challenge to the Durbin Amendment.

Short-term gain versus long-term gain

Readers, we have a choice to make. We can price our merchants with a discount rate using tiered pricing. In the short term, we will increase profits (which will vary depending on the mix of card types).

The dangers we face using tiered pricing are that other agents can switch clients to low-ball Interchange Plus rates or that a sudden shift in regard to the Durbin Amendment (either repeal or lawsuit) may allow for interchange higher than your tiered rate.

We could also choose to make a fair profit with Interchange Plus. While a low-ball offer could steal a merchant, overall attrition would likely be lower than with a profit-enhancing tiered rate. In my opinion, the real benefit with Interchange Plus is that when the Durbin Amendment is either repealed or overturned (as I expect within the next two years), there would be a smaller jump in costs for merchants, with no effect on our residuals.

What you do today, determines your tomorrow.

Bill Pirtle is the President of C3ET Credit Card Consortia for Education & Training Inc., a joint venture with Theodore Svoronos of Merchant University. Created to establish a comprehensive training program for ISOs and merchant level salespeople, C3ET is working with industry experts to produce a training guide to be published in early 2012. Bill's email address is He welcomes all connections on Facebook and LinkedIn.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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