Usually compromises are designed to make everyone happy.
But the Fed’s decision to raised the proposed limit on debit card swipe fees has had the opposite effect.
All sides of the debate over debit are still feeling pretty cranky…
Last year, as part of the Dodd-Frank Financial Reform Bill, Congress required the Federal Reserve to place limits on debit interchange fees. That’s what merchants/retailers are charged by banks every time you swipe your convenient little plastic card.
Currently – the average swipe fee is about 44-cents per transaction. But there is no cap. An interchange fee can be as much as 2% of the entire purchase.
Originally – the Fed proposed capping swipe fees at a maximum of 12-cents per transaction. Banks said they’d lose anywhere from 70% to 90% of the revenue they made from those fees, which totaled more than $16 billion in 2009.
And now – The Fed changed it’s tune a little bit and raised the proposed limit to 21-cents per transaction. It’s estimated that would cut banks’ revenue from swipe fees by around 40%.
So why is everyone still all grumpy-pants?
Why Retailers Are Mad
The National Retail Federation and other similar groups were pretty happy with the original proposal of capping swipe fees at 12-cents. But they also thought it could have been better. In fact, most of the folks on this side of the debate would love to see the fees eliminated completely.
Their point of view is that debit cards do pretty much the same thing as all personal checks – and merchants aren’t charged when customers use checks.
So the decision to raise the cap to 21-cents made retailers awfully angry. In their minds, the Fed wussed out and caved in to the big banks, which launched major lobbying and advertising campaigns against the proposed cap.
“We are deeply disappointed with this result,” says Tita Freeman of the National Retail Federation. “Clearly they bowed to pressure — significant pressure — from the banks, and watered down the end rule.”
Why Banks Are Not Satisfied
Folks in the banking industry are calling the Fed’s change of heart “less of a loss” But they sure don’t consider it a win.
“We feel better about the 21 cents than we felt about the 12, that’s for sure, ” said Credit Union National Association President Bill Cheney in a story with NPR.
Banks had argued that money charged in interchange fees was used to fight fraud and protect consumers as well as fund debit card rewards programs and free checking. New banking fees as well as the disappearance of free checking and rewards started before any new regulations became official.
Losing 40% is a lot better than losing 70% – but it’s still a pretty significant loss. It’s still billions of dollars.
Why Consumers Like You Are Frustrated
These new rules were supposed to benefit people like you. But whether that’s the case is still up for debate.
Fed Chairman Ben Bernanke calls the compromise “the best available solution”, and says “the ultimate beneficiary, we hope, is the consumer” Hope…is not the most confident sounding word in this case.
Banks say the disappearance of free checking and rewards programs is still inevitable.
The rules were meant to mostly affect bigger banks with assets of more than $10-billion. However, a recent survey of credit unions found that 65% are considering eliminating free checking because of the new debit card rules.
From the beginning, banks discounted retailers claims that lower costs would be passed on to consumers. Why would stores charge you less if they can already get you to pay current prices?
Now that the Fed is raising its proposed cap, the NRF says savings for consumers won’t be as much as expected.
The new rules officially go into effect on October 1, 2011.
Image Credit – massdistraction
+Kasey Steinbrinck is the lead blogger on personal finance and the economy for Check Advantage. When you order checks from Check Advantage, you’ll find hundreds of unique photography featured on Wildlife Checks as well as Flower Checks and much more! Contact Kasey if you’d like free original content for your blog or website.
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So, it seems that the cap increasing means nothing — if cannot tell as loss — for the entire parties.
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Retailers are complaining, but isn’t that just an expense that gets passed along to consumers?
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Good point, that’s very true. I think the businesses that really hate swipe fees are the smaller ones. So-called big-box stores can absorb those fees a lot easier but smaller merchants say it makes it hard for them to be competitive.