Wednesday, March 16, 2011

Debit Card Rules WILL Affect You

My employer is apoplectic over the so-called "Durbin Rule" that passed as part of Chris Dodd's banking legislation. But when I try to talk to normal folks about it, their eyes glaze over. So, I was thrilled to see that BusinessWeek has up the first really good summary of the issue, and why the average American should care.

Framing brawls about money as essentially consumer issues is a time-honored tactic in Washington. However, the debit-card fee issue is primarily a conflict between big business and big banks. Up for grabs is $16 billion in annual revenues. That's the amount merchants collect—at an average of 44 cents per debit-card swipe—and turn over to banks. Retailers have been complaining for years about the hefty fees. The fight is reaching a crescendo as an April deadline nears for the Fed to decide what is a "reasonable" fee, as required under last year's Dodd-Frank financial regulation law. "This is a battle between the large retailers and the large banks," says Clifford Rossi, executive-in-residence at the University of Maryland's Center for Financial Policy, who has done financial industry-sponsored research on swipe fees. "The voice lost in the shuffle is the consumer's."
Here's the bottom line:

1. If the new 12-cent cap on Debit Card transactions is enacted, you may see cheaper prices at retailers. BUT you will lose free checking, rewards programs, and possibly free debit cards altogether.

2. If the new 12-cent cap on Debit Card transactions is NOT enacted, you may see prices rise at retailers. BUT you may also see them starting to refuse to accept Debit Cards from some providers.

Either way, your life just got a lot more complicated in the name of "consumer friendliness".


shadowmom1 said...

Luckily, I never use a debit card. Still, I could be affected by less friendly fee schedules at the bank side.

quizwedge said...
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quizwedge said...

Not really a fan of either option, but I guess I'd rather they not enact the cap. Prices will rise soon enough anyway. I'd rather not lose free checking. As for paying with debit, I can think of only three places where we'd use our debit card, short of wanting cash back. All three are because they either don't accept credit cards or, in the case of one gas station, the debit card price per gallon is cheaper than the credit card price per gallon.

MusclemanInProgress said...

The free market should reign, with the feds leaving their hands out.


Any debit card company that charges an excessive fee for swipes can be turned down by the store, thus the debit card loses revenue and has to re-evaluate, likely dropping its fees through the force of Competition. Any store that raises its prices to compensate for excessive debit card fees risks losing customers to the less expensive stores, causing the store to re-evaluate...

Etc., etc., etc.

The only place I can find for government to be involved in the private sector is simply to enforce honesty. A debit card company should be able to charge however much per swipe it wants, as long as it presents this information honestly to the retailer. etc., etc., etc.

quizwedge said...

MusclemanInProgress, I guess I should have said that I'm not really a fan of either outcome. In general, I'm for less government regulation too.

The cost of entry into the credit/debit card market is quite high, so it's relatively easy for the companies to all agree, "this is the fee" giving retailers the choice of pay the fee, pass the fee directly to their customers, or don't accept debit cards. I'm guessing there's little room to enter the market and not be a team player.

Kreditkort said...

Debit cards will bring you all the services that come with a credit card. You can use any credit card payment is accepted, the fees are very reasonable - in most cases, no payments and no interest in ensuring a month later. While debit cards are also some disadvantages, like, you could get really broke after spending uncontrollably, and that the bank can not build a credit if you have damaged credit. So in the end you still have to compare the benefits and make the best choice of a suitable shape and habits.