RegulationTIN Validation As of 2013, the IRS requires all payment providers to match a merchant’s TIN (Tax Identification Number) with the system the IRS uses. Section 6050w requires payment providers to provide accurate information about the Federal Tax ID and the Tax filing name of the merchant. A merchant is required to provide accurate TIN information only if the reported amount exceeds $20,000 and the aggregate number of transactions exceeds 200 with respect to any merchant within a calendar year. Card Pay will perform the necessary process of matching this information to the system the IRS uses. If either the Federal Tax ID or Tax filing name is not correct, Card Pay will reach out to the merchant to acquire the correct information. If by the next calendar year the TIN information is still incorrect, Card Pay will be required by law to begin backup withholding on the behalf of the IRS (currently at 28%). Once backup reporting is started, Card Pay can no longer stop this process until the merchant files the correct paperwork with the IRS. The Durbin Amendment The Durbin Amendment, passed as part of the Dodd-Frank financial reform legislation in 2010 went into effect on October 1, 2011. This amendment limited the fees that could be charged to retailers for processing debit cards. In response, a group of retailers sued the Federal Reserve, arguing that the interchange fee cap had been set too high, and that the non-exclusivity rules for payment networks should apply to all debit card purchases, and not just to the ones requiring the customer to input a PIN code but the Supreme Court declined to hear the case in 2014, effectively upholding the amendment. The amendment is named after Senator Dick Durbin of Illinois, the author of the legislation. The Goal of the Amendment Every time a customer pays with a debit card, the issuing bank charges the retailer an interchange fee. Before the Durbin Amendment, the average interchange fee was about 44 cents per transaction. This resulted in upwards of $14 billion dollars of revenue for banks every year. There were no regulations governing these fees, and retailers feared that banks would continue to increase them. Their options would be to increase product/services prices, pass the fees on to consumers, or stop accepting debit cards. None of these options were acceptable, leading to retailers to heavily lobby for legislation that would cap these fees. Its Effects When the Durbin Amendment went into effect, the interchange fee was capped at 0.05 percent of the purchase plus 21 cents. It also allowed the issuing bank to charge an extra cent if the issuing bank implemented fraud prevention policies. This greatly reduced the amount of revenue banks made from interchange fees. However, prior to the amendment, some interchange fees were based on the amount of the purchase. For a small transaction, the fee was often much less than the average 44 cents. However, following the amendment, the rate of 0.05 percent plus 21 cents has been charged on almost all purchases, no matter how small. While some retailers count this as a win for both themselves and consumers, some do not see it as such due to some unexpected side effects of the amendments. These include increased bank fees and a loss of reward programs and other perks. Many banks, for example, no longer offer free checking accounts. A number of banks also increased fees charged for insufficient funds and began requiring accounts to have high minimum balances or pay a monthly account fee. The End Result The result is that large retailers benefited from the Durbin Amendment because it cut the average interchange fee by almost 50 percent. Smaller retailers may not have seen savings that high, especially if they mostly deal in small transactions. Whether the net result for consumers was positive or negative, however, is still highly debated. Card Pay must follow the rules and regulations governed by Visa/MasterCard and the IRS on these issues of compliance and regulations. |
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