Advertiser Disclosure

Banking

What Is the Durbin Amendment and How Does It Affect You?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The financial crisis that engulfed the global economy a decade ago prompted intense discussion of the role that banks play in our economy and our lives. One of the most impactful outcomes of the debate was the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

When the Obama administration was preparing the Dodd-Frank financial reforms, it needed buy-in from multiple senators to get the legislation through Congress. One of these senators, Dick Durbin of Illinois, didn’t think the bill went far enough to help consumers, so he pushed additional regulations to be included in the reforms, which became known as the Durbin Amendment.

While the purpose of this amendment had good intentions, critics say it may have created unintentional problems for banks. In this article, we’re looking at what exactly the Durbin Amendment changed and how it affects you.

Why was the Durbin Amendment included in the Dodd-Frank Act?

The Dodd-Frank Act added new regulations for nearly every part of the financial sector. Sen. Durbin saw the passing of Dodd-Frank as a chance to rein in debit card transaction fees, which he felt were too high. Since these protections were not in the original Dodd-Frank bill, he added them through an amendment.

Before the government passed Dodd-Frank, banks charged roughly 1-2% per debit card transaction, which led to an average of 40 cents per transaction. The Durbin Amendment set a cap where the most companies could charge is 0.05% of the purchase plus 22 cents.

According to Jared Weitz, CEO and founder of United Capital Source, the government passed the Durbin Amendment partly to improve economic growth. “The idea was that if transaction fees for swiping a debit card were lowered, businesses could decrease overall prices resulting in higher spending among consumers.”

To support smaller financial institutions, the Durbin Amendment made banks with less than $10 billion in assets exempt from the limits. These banks can charge a higher percentage on debit card transactions than their larger competitors.

Did the Durbin amendment really help consumers?

The direct impact of the Durbin Amendment is that it helps retailers save money on their debit card transaction fees. For the amendment to help consumers, stores need to pass these savings to their customers by lowering their prices. A 2019 paper from the University of Pennsylvania found that this does happen in some situations, namely in markets where retailers face a lot of competition and their customers use debit cards frequently.

However, the study did not find an across-the-board price reduction for all stores. Retailers in less competitive markets may be keeping the cost savings for themselves rather than passing the money on to their customers. In addition, stores that do not process many debit card transactions may not see enough savings from the Durbin Amendment to justify lowering their prices.

Finally, the way the Durbin Amendment is designed does not actually lower fees for all retailers. Before Durbin, card issuers charged a higher percentage of sales. Now they charge a lower percentage with a higher flat transaction fee.

“One problem with the Durbin Amendment is that it didn’t take small transactions into account,” said Ellen Cunningham, processing expert at CardFellow.com. “On a small transaction, 22 cents is a bigger bite than on a larger transaction. Convenience stores, coffee shops and others with smaller sales benefited from the original system, with a lower per-transaction fee even if it came with a higher percentage.”

Retailers that see their costs go up could end up increasing their prices, which hurts consumers, the complete opposite of the Durbin Amendment’s goal.

How did the Durbin Amendment impact banks?

By capping debit card fees, the Durbin Amendment sharply reduced how much banks earn on these transactions. The University of Pennsylvania estimates that bank revenue from these transactions fell by roughly $6.5 billion a year after this new law.

One unintended downside of the Durbin Amendment is that since banks are earning less through debit card transactions, they are trying to make up this revenue in other ways. Banks have cut back on offering rewards for their debit cards. Banks have also started charging more for their checking accounts or they require a larger monthly balance. Since Durbin passed, the University of Pennsylvania found that the number of free checking accounts available fell by 40%. Finding a high-earning, low-fee checking account is still possible today, but you need to do more research. You could start here with our list of the best checking accounts for 2019.

Brad Thaler, vice president of legislative affairs for the National Association of Federally-Insured Credit Unions, is not a fan of the Durbin Amendment. “Proponents of the bill promised consumers billions of dollars in savings in the form of lower prices,” he said. “However, retailers pocketed those savings themselves and never passed them on.”

“Not only did consumers fail to see lower prices at the checkout lines, they also saw a reduction in free checking and the elimination of debit reward programs as a result of government-imposed price controls.”

Durbin Amendment pros and cons

Pros:

  • Limits debit card transaction costs: Durbin Amendment reduced the amount banks charge per debit card transaction nearly by half (from an average of 40 cents before Dodd-Frank to roughly 22 cents now.)
  • Saved money for many retailers: The Durbin Amendment capped the percentage banks can charge on a debit card purchase at 0.05%, versus 1-2% before the amendment. A smaller percentage fee helps retailers save money, especially on large transactions.
  • Lower prices for consumers in some markets: A University of Pennsylvania study found that some types of retailers lowered their prices after the Durbin Amendment: retailers in competitive markets as well as those who process many debit card transactions.
  • Does not restrict smaller banks and credit unions: Banks and credit unions with less than $10 billion in assets can still charge a higher fee, so they do not take as steep a revenue loss as larger banks. This could help keep account fees lower at smaller institutions.

Cons:

  • Did not lead to lower prices across the board, as expected: While the government expected consumers to benefit from lower prices, nearly 10 years later, there is no evidence that this has happened except for the specific scenarios listed above.
  • Some merchants saw debit costs go up and may have raised prices: For smaller transactions, the debit card fees can end up higher now versus before the Durbin Amendment. Retailers that process many small transactions (coffee shops, convenience stores, etc.) may have raised prices to make up this cost.
  • Banks cut back other benefits to make up the lost revenue: Fewer banks now offer free checking accounts. They also cut back on rewards for their debit cards, since these transactions are now less profitable. In exchange, they are offering better rewards for credit cards. For example, the sign-up bonus on travel credit cards has nearly tripled in the past 10 years.

The final word on the Durbin Amendment

In the end, while the Durbin Amendment has led to some limited benefits, it has not been the home run Sen. Durbin and his colleagues promised when they passed Dodd-Frank. It’s an example of how if the government doesn’t plan properly, the unintended consequences of a law can do more harm than good. As the government updates Dodd-Frank, like with the recent rollback, perhaps they should review the Durbin Amendment as well to find a better solution for consumers.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Advertiser Disclosure

Banking

Credit Karma Savings Account Review 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Credit Karma is the latest fintech company to jump on the mobile banking bandwagon. The company is offering a free high-yield savings account, which is somewhat of a departure from the product it’s most famous for: providing consumers with access to free credit checks.

Credit Karma Savings offers a generous 1.80%  APY, and the company says it will leverage technology to keep its rates competitive. Credit Karma is partnering with a network of banks to hold your deposits and gain Federal Deposit Insurance Corporation (FDIC) insurance.

What is Credit Karma Savings?

Credit Karma Savings is a high-yield savings account that is accessible through the company’s app. Credit Karma claims it will take consumers just “four clicks” to get started.

Once signed up, deposits will collect an APY of 1.80%. That’s 22 times more than the current national average of 0.09% for savings accounts. Credit Karma says it will leverage technology to keep that rate moving competitively, so that consumers won’t have to monitor rates themselves to ensure they’re getting the most for their money.

There are no fees or minimums required to open a Credit Karma Savings account, and deposits up to $5 million are insured by the Federal Deposit Insurance Corporation (FDIC). To achieve this, Credit Karma partnered with MVB Bank to provide banking services, and it will be utilizing a network of over 800 banks to hold deposits.

However, it’s important to note that the amount that is actually insured is dependent on whether you already have a balance in a partner bank and how much that balance is: “Actual insured amounts may be lower or adversely affected based on any balances you hold at a network bank,” Credit Karma said.

Credit Karma Savings vs. other cash management accounts

Credit Karma joins the ranks of other fintech companies that have recently launched high-yield savings accounts or cash management accounts for consumers, all boasting no fees and no minimum balance requirements. Here’s how Credit Karma Savings stacks up against companies with similar products.

Bank APYNumber of partner / network banks Amount FDIC insured

Credit Karma Savings

1.80%1 partner bank with network of 800+ banks$5 million

SoFi Money

1.60%7 program banks$1.5 million

Betterment Everyday Cash Reserve

1.83%11 program banks$1 million

Wealthfront Cash Account

1.78%9 program banks$1 million

Savings accounts with higher interest rates than Credit Karma Savings

Credit Karma Savings’ 1.80%  APY is certainly nothing to sneeze at, especially when looking at other fintech companies that offer similar high-yield accounts for stashing your cash. But other savings accounts—particularly those at online banks—boast even higher rates. Vio Bank, for example, currently has an online high-yield savings account with an impressive APY of 1.95% , while HSBC Direct Savings touts a 2.00% APY.

The bottom line on Credit Karma Savings

Credit Karma Savings offers a number of attractive incentives, like a competitive APY, no fees and a high maximum amount of $5 million that’s eligible for FDIC insurance. If you already have a Credit Karma account, the convenience and ease of being able to open a Credit Karma Savings account isn’t a bad perk, either. If your main goal is to rack up as much interest as possible on your savings, though, a number of online banks offer higher-yielding savings accounts.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Advertiser Disclosure

Banking

Review of Mvelopes Budgeting App

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The Mvelopes app helps you make a budget and stick to it. The app mimics the envelope budgeting system — where you place actual cash in physical envelopes — on your mobile device. Placing cash in paper envelopes every month is a budget strategy that’s been around for a long time, and Mvelopes virtualizes this tried-and-true method. If you like the idea of budgeting via envelopes but find it a hassle to use actual physical envelopes and cold, hard cash, Mvelopes may be a budgeting solution for you.

What is the Mvelopes app?

With Mvelopes, you trade the physical cash and paper envelopes of the envelope budgeting system for a website and a mobile app. You synch up bank accounts with Mvelopes, which lets you create virtual envelopes and then assign different amounts to place in each envelope. Mvelopes offers a 30-day free trial, after which you’ll need to decide how many features you’d like to pay for.

Mvelopes has three levels of service: Basic for $6 a month, Plus for $19 a month, and Complete for $59 a month. Choosing to pay annually gives you a discount equal to two months of fees. At the Complete level, Mvelopes gives you a 60-day money-back guarantee, no questions asked.

Features of Mvelopes

The Mvelopes Basic account offers the following features:

  • Digital envelope budgeting
  • Automatic importing/syncing of transactions
  • Monitoring of account balances
  • Interactive reporting
  • Live chat support
  • Weekly webinar

After you open your Mvelopes account, you’ll see a dashboard with six broad budget categories (bills, everyday, giving, goals, periodic, system), each populated with budgeting envelopes. You can add or remove envelopes from these budget categories at any time.

Under each category, Mvelopes provides envelopes for items like auto maintenance, home maintenance, gifts, auto insurance, electricity, phone and so on. You’re free to change these envelopes at any time to match up with your own personal budget categories.

Add financial account to sync transactions

After opening your account, you’ll be asked to sync one or more financial accounts to Mvelopes, like a checking or savings account, or a credit card account. Mvelopes will automatically import your transactions from each account. Imported transactions are automatically assigned to your Mvelopes inbox. From there, you are responsible for categorizing your deposits and purchases into the correct envelope.

The Mvelopes dashboard and reporting features allow you to see at a glance all of the information regarding your funding and spending transactions, along with your budgets and the amounts remaining in each envelope.

Interactive reporting

You can generate three types of interactive reports that help you understand your spending and plan your budget: envelope reports, account reports or spending plan reports. Within these broad categories, you can track envelope transactions and balances, create summary reports and show details of accounts and envelopes.

Live chat support & weekly webinars

Live chat is available at all tier levels Monday to Friday from 9 AM MST to 7 PM MST, but not on Saturday or Sunday.
Mvelopes likes to stress the educational component of its services, and in addition to extensive educational information you can find online, Mvelopes hosts weekly webinars on various financial topics.

Mvelopes Plus features

At the Plus level, you get the features above plus:

  • Quarterly checkup from an Mvelopes Personal Finance Trainer
  • Debt reduction tools
  • Access to educational resources
  • 1-on-1 assistance with setting up your account
  • Priority support

The big advantage of the Plus tier is a quarterly check-in with a personal finance trainer, who helps guides you and provide feedback on your budgeting process. In addition, Mvelopes will custom-design a rapid debt reduction plan that is personally tailored to your financial needs. You can discuss your progress on this plan every three months with your personal finance trainer session.

Mvelopes also offers an interactive learning center to help Plus-tier customers understand the keys to financial success across a broad range of topics.

The Plus tier also entitles you to one-on-one startup support to help you establish your account and set up your envelope budgeting program. It also gives you priority when it comes to support issues.

Mvelopes Complete features

Complete is Mvelopes’ top tier of service, giving customers the following additional benefits:

  • Monthly sessions with a personal finance trainer
  • A customized Mvelopes budget plan
  • Financial education guided by a trainer
  • Accountability and motivation tools

Top-tier Mvelopes clients get monthly access to a personal finance trainer to help keep them motivated and on track toward their budgeting goals. Working in conjunction with their trainer, Complete-tier customers create a customized financial plan tailored to their personal situation.

In addition to the Plus-tier educational resources, Complete-tier customers can learn additional financial planning techniques and strategies, including financial goal tracking, via trainer-guided education.

Advantages of Mvelopes

  • Automatically imports all of your financial transactions
  • Multiple levels of service to meet varying customer needs
  • 60-day money-back guarantee at Complete, its top-tier level
  • Options for unlimited envelopes and personal financial coaching

Downsides of Mvelopes

  • Not completely automated: You still have to categorize your imported transactions
  • Interface is not entirely intuitive or easy-to-use
  • After the 30-day introductory trial, there is no free option available
  • No 24/7 live chat

Mvelopes vs. other budget apps

Mvelopes is uniquely focused on making the envelope-budgeting system easy to use in an online or mobile format. If you’re already familiar with this type of budgeting, the app may be a perfect fit for you. However, there are other options worth examining.

Mvelopes vs. Goodbudget

Goodbudget is one of the few competitor apps to Mvelopes that focuses on the same envelope budgeting system. The apps are very similar, with the main difference in their interfaces and pricing.

Unlike Mvelopes, Goodbudget offers a free option. However, users are only allowed to link a single account. Goodbudget’s paid account costs $6 per month — the same cost as Mvelopes’ Basic account — and offers broadly similar functionality at that level. However, Mvelopes’ premium service tiers give you quarterly or monthly access (for higher fees) to personal financial specialists, something Goodbudget doesn’t offer at any price level.

Mvelopes vs. EveryDollar

EveryDollar is a budgeting app without the envelopes. As the name implies, EveryDollar allows you to track every dollar that comes into or goes out of your linked financial accounts. Like Mvelopes, you’ll start by setting up your budget categories, such as groceries, restaurants, clothing and health care, and assigning your transactions to each segment. Although the categories are not specifically called “envelopes,” they serve the same purpose as with Mvelopes.

EveryDollar has a free version and a paid version that costs $129.99 per year. The free version includes a personal budget planner and an expense tracker. Access to service and savings experts, such as insurance, real estate and tax professionals, comes with the paid version.

Is Mvelopes right for you?

If you’re already familiar with the envelope system of budgeting, Mvelopes might be your go-to budgeting app. However, even at the Basic level, you’ll be paying $6 per month just to digitize your envelopes. Meanwhile, the top tier costs a very steep $59 per month to add monthly financial coaching. The Mvelopes requires you to regularly allocate your funds to individual envelopes, which could be helpful for some users, but cumbersome for others. Whether you stick with Mvelopes depends on your comfort with frequently interacting with your envelopes.

Fees mentioned in the article are accurate as of the date of publishing.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.