Who pays for lower debit card fees?

This post comes from Brian O'Connell at partner siteTheStreet.

To paraphrase Dr. Seuss, big banks don't like the Durbin Amendment. Not a little bit.

They don't like it here or there and they don't like it anywhere -- but they especially don't like it where the fee-draining amendment hits banks hardest: the pocketbook.

The Durbin rule, green-lit by Congress as part of the Dodd-Frank Financial Reform Act of 2010, and taking effect last October, took aim at interchange fees for debit card transactions. That's the fee retailers and other service providers pay a bank any time a consumer uses a debit card to make a purchase.

The amendment lowered the fees paid to banks with more than $10 billion in assets, thus targeting big financial institutions in making sure interchange fees were "reasonable and proportional." (Post continues below video.) 

So how did that all work out for banks? According to a new report out this week from Card Hub, the answer is "not so good" for large banks -- and small ones.

In fact, the rule may not have worked out so well for consumers, either.

According to Card Hub, the Durbin amendment costs big banks $8.06 billion and smaller banks $329.4 million on an annual basis.

Furthermore, interchange fees have fallen by 59.3% for "signature" transactions and 32.4% for PIN transactions, the study reports. On the surface, that sounds like a good deal for consumers. But the fallout from Durbin may hurt consumers as much as help them.

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"The effect of the Federal Reserve's interchange fee cap on large banks is really no surprise," says Card Hub CEO Odysseas Papadimitriou, a former Capital One senior director. "From the moment the rule was finalized, it was plainly obvious that large banks were going to take a big hit. The only real questions were exactly how big and how they would recoup their losses. Now we know that it costs them over $8 billion and led them to abolish debit card rewards while increasing checking account fees -- changes that we should expect to be permanent."

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