Washington, D.C.-area residents who use the service Parkmobile to pay for parking at the city's hundreds of meters received an email this week informing them fees to use the convenient pay-by-phone option are going up.
What used to be a 32-cent fee will now be 45 cents every time customers virtually feed a meter.
The culprit of the fee hike according to Parkmobile? The already much-maligned Dodd-Frank Wall Street Reform Act and the Durbin Amendment.
The Durbin Amendment, enacted last October as part of the Dodd-Frank Act, set a cap on the amount financial institutions can charge merchants to process debit card transactions. Before the Durbin Amendment, retailers paid an average of 45 cents every time they swiped a debit card. Now, the max card companies can charge is about 21 cents per transaction.
That sounds good for retailers and good for business until you look at the unintended consequences of how credit card companies have responded to the legislation that has limited their ability to charge for processing services.
In the wake of the Durbin Amendment, card companies have done away with discounts they used to give on transaction fees for small amounts, usually under about $10. Now, companies such as Visa and MasterCard charge many small merchants at the max rate of 21 cents.
"Our processing costs have tripled," says Laurens Eckelboom, senior vice president of marketing at Parkmobile. "The debit interchange fees were capped without regard to transaction size. We deal in small average transactions so that is damaging since debit cards are used more frequently to pay for small transactions."
Other retailers that deal mostly in small-dollar amounts have also been impacted. DVD-rental company Redbox announced last year it was raising rental prices from $1 to $1.20, citing "the recent increase in debit card interchange fees as a result of the Durbin Amendment."
"This is yet another example of how the Durbin amendment has failed those it claims to help," Trish Wexler, spokeswoman for the Electronic Payments Coalition, wrote in an email. "The increased costs are forcing these businesses to raise prices, like Parkmobile."
"Whether buying a big screen television or paying for parking, the interchange fee is the same," Wexler added. "Government intervention in the interchange system might boost profits for giant retailers but it clearly harms the interests of American small businesses."
Parkmobile, which boasts more than 400,000 members and 4.5 million some transactions in the D.C. area since its launch in 2011, is hoping to dull the harm by being creative in how it accepts payment for its services. After absorbing the increased transaction costs for several months, Parkmobile is avoiding passing along the higher fees by giving customers the option to pay for parking with a new method: the Parkmobile Wallet.
Created in conjunction with Citibank, Parkmobile Wallet allows users to go online and load the wallet with money and parking meter fees are deducted from the balance as they use it on their mobile devices. This significantly reduces transaction costs, according to Eckelboom, because Parkmobile is charged for one transaction fee when a customer loads the Parkmobile Wallet rather than multiple times each instance a user pays with a debit card.
Customers using Parkmobile Wallet will only be charged 30 cents per transaction as opposed to the 45-cent fee that goes into effect next week for those who continue to pay by debit card.
"In the end, credit card companies have decided to maximize [transaction fees] regardless of ticket size," Eckelboom says. "What we did not want to do was pass along those fees without providing an alternative solution. That's why we decided to do Parkmobile Wallet."
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