Published on:

Dodd-Frank Act presents Hotels with decisions on credit and debit card charges

24 August 2012

Hotel Lawyer on card processing fees.

The financial reforms following in the wake of the banking mess brought new regulations on the use and charges for credit and debit cards. There may be some benefits here for hoteliers, but there certainly are some decisions to make.

In addition to all the work he does on hotel management agreements and hotel franchise agreements, my partner Robert Braun represents a number of merchant card processors, banks and merchants in structuring credit card processing arrangements, both within the United States and internationally.

Today, he shares some of his insights on the recent legal changes in laws on card processing and the potential impact on the hotel industry.

Credit Card Fees and the Hospitality Industry
Impact of the Durbin Amendment
by
Robert E. Braun | Hotel Lawyer

Dodd-Frank affects hotels and other merchants

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 certainly sparked fierce debate about government regulation, consumer choice, innovation and entrepreneurship. The Durbin Amendment, a last-minute addition to the Dodd-Frank Act, drastically lowers swipe fees – the fee charged to merchants every time a customer pays with plastic – on debit cards issued by big banks, cutting into the banks’ revenue while, presumably, lowering costs for merchants and therefore consumers. The reduction in fees was significant: the Amendment reduced fees to 24 cents from a previous average of 43 cents, according to a Federal Reserve Board report.


The Durbin Amendment became effective nearly a year ago, on October 1, 2011, and the ramifications are becoming apparent. Banks are offering fewer free or low priced services to compensate for lower revenues, and since prepaid debit cards aren’t covered by Durbin, those cards are becoming increasingly popular. Hotels, as merchants, are significantly impacted by the Durbin Amendment, and are continuing to react.

Lower swipe charges

Senator Durbin, speaking to a group of reporters in Nashville before the effective date of the Amendment, explained that the new law would be good for merchants: “The retailer will be more profitable. That’s what’s behind this.” Durbin said that the amendment was designed to protect retailers such as gas stations, for instance, who often lose a lot of their profit to debit cards. Durbin added that retailers were likely to pass on their profits to their customers, at least those retailers who are competitively trying to entice you into their stores.

So the law was designed to protect not only consumers, since lower swipe charges should result in lower prices for products and services, but also business owners, especially those who depend on numerous small transactions to survive.

New law lets merchants recover processing fees

Because the Durbin Amendment allows merchants, including those in the hospitality industry, to recoup at least some of the fees they pay to card processors, it should benefit the industry. This may encourage some hotels to rethink their prior refusal to accept debit cards because the costs were high, and they could not recoup those fees. That should expand the use of debit cards and, consequently, provide at least some additional incremental revenue for the industry.

To charge or not to charge

On the other hand, hotels face a dilemma because consumers are likely to object to paying a fee for something that was previously free (or at least seen as free, since the cost of card fees was built into the cost of rooms, food, beverage and services). Hotels will have to make the decision to charge, or not charge, card transaction fees. Hotels could benefit from the additional revenue, but they will add yet another line to an already complicated checkout bill, which could alienate some guests. Moreover, some states (like California) still prohibit charging a premium for use of a card, as opposed a cash transaction. While not impossible, it may be difficult to incorporate these fees over large networks. Thus, in the short run, hotels may not be able to recoup charges.

In addition, the reduction in credit card and debit card service fees are expected to reduce revenues to the banking industry; banks, in turn, are expected to recover some lost income from their customers — both individual and institutional. Hotels could face additional banking costs, as well as the possibility that some consumers may be stretched.

GOOGLE Wallet and beyond

The ultimate impact of the Durbin Amendment make take some time to determine, but there are also other payment issues that could have a significant impact on the hospitality industry. For instance, hotel owners and operators should consider how new payment systems, such as Google Wallet, a mobile payment system, impact their operations. These transactions, which are becoming more and more popular, are likely to have a longer-lasting impact and require more adaptation in operations. They add additional layers of complexity with another party, additional hardware and software, and issues on consumer security and privacy.

Here are some of the ways JMBM helps clients with data security matters

The JMBM Global Hospitality Group® and the JMBM Cybersecurity & Privacy Group work with clients to establish and enforce data security policies, and assists clients when there are breaches. We have helped a variety of clients, including hospitality companies, in developing compliance programs, addressing data breach issues, and negotiating contracts with vendors and providers.

Here are some of the ways we help clients with data security matters:

  • Respond to data breaches, including selecting appropriate technology and forensics experts
  • Develop and implement data breach response plans and procedures, and related privacy, information security and data retention policies and procedures
  • Address statutory and regulatory issues
  • Develop effective solutions for protecting and managing information assets and complying with legal requirements, using an approach that will contain costs and maintain operational efficiency
  • Advise clients on international privacy laws and rules on their businesses, including the U.S.–E.U. Safe Harbor Program
  • Address legal challenges posed by social media and mobile applications
  • Negotiate agreements for technologies and services to implement information management systems
  • Conduct internal investigations, particularly those involving sensitive electronically stored information
  • Assist companies in developing appropriate governance tools to the board of directors and executive management levels to address cyber risk

Click here for more information, including specific examples of projects undertaken for representative clients.

Other information about cybersecurity issues

If this article was of interest, you may also wish to read other articles on “Data Technology, Privacy & Security,” which include the following articles:

What every hotel owner (and operator) needs to know about “data security” after the Wyndham case

What the Target data security breaches mean for hoteliers

Cyber Security Alert: How to protect your proprietary information from employees

Hotel Lawyer Privacy Alert: Do your hotel mobile apps comply with new interpretations of online privacy rules?

Hotel Liability for Guest Information — What you need to know and how to avoid liability.

Losing the expectation of privacy bit by bit, byte by byte.

Dodd-Frank Act presents Hotels with decisions on credit and debit card charges.

Bob BraunBob Braun is a Senior Member of JMBM’s Global Hospitality Group® and is Co-Chair of the Firm’s Cybersecurity & Privacy Group. Bob has more than 20 years experience in representing hotel owners and developers in their contracts, relationships and disputes with hotel managers, licensors, franchisors and brands, and has negotiated hundreds of hotel management and franchise agreements. His practice includes experience with virtually every significant hotel brand and manager.

Bob also advises clients on condo hotel securities issues and many transactional matters, including entity formation, financing, and joint ventures, and works with companies on their data technology, privacy and security matters. These include software licensing, cloud computing, e-commerce, data processing and outsourcing agreements for the hospitality industry.

In addition, Bob is a frequent lecturer as an expert in technology, privacy and data security issues, and is one of only two attorneys in the 2015 listing of SuperLawyers to be recognized for expertise in Information Technology. Bob is on the Advisory Board of the Information Systems Security Association, Los Angeles chapter, and a member of the International Association of Privacy Professionals. Contact Bob Braun at 310.785.5331 or rbraun@jmbm.com.

This is Jim Butler, author of www.HotelLawBlog.com and hotel lawyer, signing off. Why don’t you give us a call (or send an email) and let us know what you working on. We would like to see if our experience might help you create value or avoid unnecessary pitfalls. Who’s your hotel lawyer?


Our Perspective. We represent hotel owners, developers and investors. We have helped our clients find business and legal solutions for more than $71 billion of hotel transactions, involving more than 3,800 properties all over the world. We bring this experience to any hotel project — big or small. Let’s explore how it might work for you. For more information, please contact Jim Butler at jbutler@jmbm.com or +1 (310) 201-3526.

Jim Butler is a founding partner of JMBM, and Chairman of its Global Hospitality Group® and Chinese Investment Group™. Jim is one of the top hospitality attorneys in the world. GOOGLE “hotel lawyer” and you will see why. Jim and his team are more than “just” great hotel lawyers. They are also hospitality consultants and business advisors. They are deal makers. They can help find the right operator or capital provider. They know who to call and how to reach them.