Think Before You Swipe: Debit Cards To Cost More Now

September 27, 2011Personal Financeby EW News Desk Team


 In August, American Banks Wells Fargo and Chase announced pilot plans to implement a $3 monthly fee for their debit card usage. In November, banks like SunTrust and Regions will follow suit by charging a $5 for a monthly debit card usage fee. 

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However, many other leading American banks such as J.P. Morgan and the Bank of America have already begun enforcing similar charges on their customers. 

Banks in the United States are on a trend to implement new or increased charges in the face of new regulations that take effect October 1. The new legislation, the Durbin Amendment, would see the amount that retailers pay for debit card usage (known as an interchange fee) reduce by almost 50 percent. 

Currently, retailers pay banks (not Visa or MasterCard) an average of 44 cents for each transaction that goes through, using a formula which imposes a 1.14% fee above the transaction value. Once the new legislation kicks in, the Federal Reserve will impose a limit of 21 cents per transaction. The cap applies to banks with assets equivalent to $10 billion or more.

Debit cards are widely used as a convenient, fast and reliable mode of payment. There are 520 million debit cards in circulation in the United States today.

With the new caps, banks are looking for other ways to recoup the lost revenues, including a debit card fee and cutting back on rewards and loyalty programs associated with the cards.

"Banks are all watching each other because there is a first mover disadvantage in this case. The first mover to institute debit/checking fees in a given market will experience the most scrutiny and possible attrition, along with negative press. As others follow, customers will have fewer places to move to," said Ed Lawrence, director of the debit marketing roundtable at Manhattan-based Auriemma Consulting Group.

In a separate move that would also discourage merchants from accepting debit card payments for small transactions, Visa and MasterCard are mulling over a proposed increase in merchant fees for small ticket purchases, according to a Wall Street Journal report.

At a conference in New York last week, group president of the Americas for Visa, Bill Sheedy said, "We need to make sure that we strike the right balance between driving value to the consumer and the merchant on small ticket purchases."

Such a move would provide a reduction in costs for most merchants accepting debit cards as a result of the new caps, with the exception of small-ticket merchants. 

On the other hand, credit card transaction fees remain unaffected by the new caps, with banks earning 2% of the purchase price, per transaction. 

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