The Durbin Amendment to the Dodd-Frank Act includes a new debit interchange fee rule that has banks, retailers, consumers, and members of congress embroiled in a heated argument.
If finalized, the rule would limit the fees banks charge retailers every time a consumer swipes a debit card. Right now the average fee per transaction is 44 cents. If enacted, fees would be capped at 7 to 12 cents.
This represents a considerable loss in revenue for the big banks. According to a March 16 Fox News column written by Stephen Clark, banks collected about $16 billion dollars in debit card swipe fees in 2009. This was an average of 44 cents on each of 38 billion retail transactions, valued at $1.45 trillion.
Right now the banks, and senators such as Jon Tester (Dem., Montana) are arguing that this move will increase costs for consumers. Thus, Jon Tester and a bipartisan group of U.S. senators has introduced new legislation to delay implementation. They want to put any reduction in debit card swipe fees on hold for two years while several government agencies conduct a year long study and analyze the results.
Senator Richard Durbin (Dem., Illinois) disagrees. He stated that if Tester’s bill is passed, it will be the equivalent of giving the big banks a $1.3 Billion per month bailout. Merchants and retailers agree, stating that lower debit card swipe fees would result in savings that could be passed along to the consumer in lower prices.
There are few consumers who would stand up and argue that the banks need to make more money, but some consumers are in favor of the Tester bill because they know that the banks will respond in ways that consumers will not appreciate.
One way or another, the banks will collect. Industry representatives have stated that the debit card swipe fees allow banks to provide consumers with free services, such as checking accounts. If the Fed limits what they can collect from merchants, they’ll be forced to pass their costs on to consumers.
How will they do it? Some banks, such as Chase, are considering a plan to limit debit card purchases to $50 or $100 per transaction. This could effectively push consumers to use credit cards rather than debit cards for large purchases. Banks would benefit because credit cards are exempt from the proposed new limits on swipe fees. And of course, using a credit card carries the potential of incurring interest.
In addition, Chase has already begun testing new fees. In Northern Wisconsin, they’re testing a $3 monthly fee for debit cards, and in Atlanta they’re testing a $15 monthly fee on basic checking accounts. Several banks have already hiked the minimum balances required to maintain free checking accounts and have discontinued rewards points on debit cards.
Public comment on this rule closed on February 22 and the Fed has until April 21 to finalize the decision to put the new rule into effect. If passed, it will be effective on July 21.
We’ll let you know the decision…