There’s a lot that factors into bank card processing fees, more than can be covered in a single article. For the most part, any processing fees dealers pay are in the form of interchange fees, also known as swipe fees. These cover essential functions such as handling, fraud assessment, and digital communication between the point-of-sale system, the issuing bank, and the acquiring bank. Interchange fees vary based on the card network, issuing bank, and specific card policies. Debate around bank card fees has taken place in and out of the courts for decades, but several recent landmark decisions have changed how card issuers impose interchange rates, how consumers use bank cards, and how merchants can pass along the costs of accepting bank cards to customers.
The Durbin Amendment
The catalyst for this change originated in 2010 with what is commonly known as the Durbin Amendment. This amendment is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and was designed to rein in excessive debit card transaction fees imposed on merchants by banking institutions. Upon passage, a hard cap limited the maximum interchange fee that card issuers could charge on debit transactions. However, this regulation did not apply to credit cards. As a result, banks shifted favorable rewards and incentives to credit cards while reducing benefits on debit accounts. This shift contributed to a steady rise in credit card usage, which accounted for approximately 38% of all U.S. point-of-sale transactions in 2020.
Expressions Hair v. Schneiderman
As credit card usage increased, state legislation surrounding credit card fees—particularly surcharging—became a heavily debated topic among merchant groups. This debate culminated in a 2017 case reviewed by the United States Supreme Court. At the time, many states prohibited merchants from applying credit card surcharges while allowing discounts for cash payments. Although economically equivalent, these laws regulated how price differences were communicated rather than the price itself. The Supreme Court ruled in Expressions Hair Design v. Schneiderman that such restrictions violated the First Amendment and remanded the case to lower courts.
Following this decision, many states moved to overturn existing surcharge bans on free speech grounds. At the same time, litigation against major credit card issuers gained momentum, further reinforcing criticism of swipe fees. As of September 2021, only two states continued to enforce credit card surcharge bans, meaning most merchants may now apply surcharges if they choose. For automotive dealers, this shift is significant. In an economy where electronic payments represent the majority of transactions, working with the right merchant service provider is critical. Dealer Merchant Services (DMS) is committed to helping dealers reduce costs and eliminate hidden fees. Using a proprietary hybrid processing model, DMS can save dealers up to 75% on bank card transaction fees—amounting to tens or even hundreds of thousands of dollars annually.
Not convinced? Contact us through our website or at info@DealerMerchantServices.com to receive a free cash-savings analysis. Simply provide two to three months of merchant statements, and we’ll deliver a complimentary 15-minute review showing exactly how much you can save.