A rundown of the Dodd-Frank Act

The Senate voted on July 20 to set new limits on swipe fees for retail businesses, as part of the massive Dodd-Frank finance bill, clearing the bill for approval by President Obama. These limits are being seen as a financial victory for both retailers and consumers alike. Even though you don't pay them directly, credit card swipe fees have probably had a huge impact on your finances. Each time you make a purchase from a retailer with your credit card, the retailer must pay a debit card interchange fee, better known as a swipe fee, for being able to accept the credit card charge.

These fees are often as high as 2 percent per transaction, and in 2008, represented $48 billion, which was paid by retailers to Visa, Mastercard, and card-issuing banks, and ultimately meant higher prices for consumers. In fact, after labor costs, swipe fees are the second-largest expense for convenience stores and gas stations.

Part of the Dodd-Frank Act, called the Durbin Amendment, provides credit-card fees to retailers and consumers alike, and attempts to ensure that swipe fees are proportional to the actual charges incurred by using credit cards to conduct business. Setting limits on swipe-fee increases are important, because while most retailers have seen a fall in profits in recent years, the cost for them to accept credit cards has doubled since 2003.

Some of the provisions of the Durbin Amendment that will assist retailers include ensuring that retailers have access to at least two debit card networks, since currently, card networks can require that retailers only have one network option of how to run their cards. Retailers would also be permitted to set minimum purchase limits for card use, so that they aren't found in situations where the cost of the transaction would exceed the money made. Finally, retailers would have the option of offering discounts to customers for paying with cash or debit cards.

In addition to lowering the cost for retailers to accept credit cards, this bill will encourage competition among credit card issuers as well; the element of choice between card networks will mean that the old system of card monopolies cannot force retailers to use a network with high swipe fees.

-Seth Berger