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In July, the Durbin Amendment gave the federal government the power to control debit and credit card interchange fees. Designed to stimulate the economy (which, in spite of media reports to the contrary, is really still hurting!), the changes the Fed is making with their newfound power may actually hurt both banks and customers.
The debit card fee cap rules, which will go into effect in January 2011, restricts charges to 12 cents per transaction on debit card transactions using cards issued by banks like Citi, Chase and Bank of America. However, it does not put any restrictions on how much in interchange fees Visa and MasterCard can charge merchants.
Additionally, there is no interchange fee cap on prepaid debit cards, debit cards from banks with less than $10 billion in assets, or debit cards from credit unions.
Our nation’s largest banks stand to lose up to $13 billion in annual revenue due to the changes. But, as savvy consumers, we know enough to realize they won’t eat that loss. They’ll find other ways to make up for lost profits.
Let’s put on our rose-colored glasses for a moment and look at the Fed’s intentions. After all, they expected the new regulations to stimulate the economy, not hurt customers and banks. (Right?)
On the surface, the new debit card fee cap rules could, in theory, mean:
- Lower prices at the cash register as merchants pay less interchange fees to banks and pass the savings on to customers
- Greater growth of small businesses as they pay less fees
- More places willing to accept debit cards for larger purchases
- The growth of smaller (that is, friendly, neighborhood) banks and credit unions
I take a pretty optimistic view on life, but even I’m not naive enough to believe those scenarios, except maybe the last one, will actually occur.
We can sum up the affects of the debit card fee cap in one sentence: Read your bank statements carefully!
Expect banks to make up for that $13 billion loss by hitting the average customer with fees. The banks are too smart to drive away their big business customers, so they’re going to hit your average consumer.
Expect any or all of these changes:
- An end to free checking
- An end to debit rewards programs
- Annual fees, non-use fees, or even usage fees, on debit cards
- An end to free ATM transactions
- Larger banks to push their credit (rather than debit) card rewards programs
- Banks to push other programs, such as online billpay, mobile banking and other services — which they can later charge fees for, after getting customers hooked on the convenience
Now, this is a particularly grim picture, and it stands to reason that the big banks will find a balance between keeping customers satisfied and compensating for lost revenue for debit card transactions.
Debit card rewards programs, however, are a recent phenomena, and it’s nearly a certainty that we can kiss them good-bye very soon.
As always, the best thing you can do is stay informed so you don’t find yourself in the situation of having to call the bank and find out why you’re overdrawn — only to discover your bank suddenly began charging you for your previously free checking account. Study your statements, reading carefully for any charges you don’t recognize, especially charges directly from your bank.
You must be informed of any changes to your account, with 45 days notice to opt-out (by canceling your account). So read all the literature that comes with your statements and the special notices.
And stay tuned to CreditShout, where we’ll do our best to keep you informed of the latest debit card policy changes at major U.S. banks.