Debit Card Fees: Winners and Losers
When Congress, the Federal Reserve and banks are involved, chances are nothing good is going to happen. That's what became obvious after the Fed released its plan to limit debit-card "interchange" or "swipe" fees yesterday.
Swipe fees are what banks charge merchants every time a customer uses plastic -- it's important to note that consumers don't pay these fees directly. The swipe fee changes arose from the 2010 Dodd-Frank financial reform law and only address fees for debit cards.
In 2009, the average swipe card fee was $0.44 cents and the Fed's initial plan in December called for a $0.12 cap. This year, the banking and credit card industry went into high gear and launched a substantial lobbying effort to increase the new cap.
I discussed the fees and the potential impact of the rule change with CBS television stations this morning.
Here are the winners and losers of the debit card fee changes:
Winners:
Banks and credit card companies: The massive lobbying efforts by some of the nation's largest financial institutions was effective. Instead of a cap of $0.12 per transaction, the limit was raised to $0.21, saving billions of potential lost fees.
Retailers: In 2009, the average swipe fee was $0.44 per transaction and now retailers will pay about half that amount, or $0.21.
Credit card company Investors: Shares of Visa and MasterCard (V, MA) soared by 9-10 percent after the Fed decision was announced.
Losers:
Banks: while the cap was raised, it's obvious that banks still stand to lose billions from the nearly 50-percent reduction in swipe fees.
Small business owners: While the reduction in swipe fees helps retailers in general, small business owners are furious that the cap was increased from $0.12 to $0.21 cents. Dennis Lane, a single store 7-Eleven Franchise owner and national spokesman for Reform Swipe Fees NOW! noted: "For a merchant like me who sees high debit use for small ticket items, today's rule will likely increase my interchange bill. This is not the relief that Congress intended when it passed swipe fee reform last year."
Consumers: When banks and card companies lose billions of dollars, you can be sure that they'll find other ways to extract the money from consumers' pockets. This rule will continue the trend of rising bank fees for consumers, whether in the form of higher minimums, increased ATM charges or the disappearance of once-free perks like free checking.
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