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Cap on debit interchange fees could lead to other costs

Jeff Tyler Dec 16, 2010

Cap on debit interchange fees could lead to other costs

Jeff Tyler Dec 16, 2010


Kai Ryssdal: For finance nerds, or for people who just have trouble falling asleep sometimes, boy have we got good news for you.

Today for the very first time that the Federal Reserve broadcast one of its meetings live online. If you had tuned in this afternoon, you’d have heard a detailed discussion about something called debit card interchange fees, what retailers have to pay when you use the card. The Fed wants to limit those fees, retailers think that’s a fine idea, banks don’t.

And Marketplace’s Jeff Tyler reports, banks are expected to make up the lost revenue in other ways.

Jeff Tyler: Until now, when consumers used a debit card, merchants had to pay a fee of about 2 percent of the sale. These fees cover the cost of the transaction between the merchant’s bank and the customer’s bank.

The Federal Reserve’s new limit will cap those fees. The most merchants will pay for a debit card purchase of any size is 12 cents. This is a huge hit for banks, costing them billions of dollars in lost revenue.

Scott Talbot is chief lobbyist for the Financial Services Roundtable, an industry trade association.

Scott Talbot: As the banks that are involved in the transaction are unable to recoup their costs for operating this service and allowing merchants to accept debit cards, we’re worried that those costs will be shifted down to the consumers.

He says some debit cards may soon charge annual fees. Others may charge a fee for each debit card transaction.

Talbot: We could see a loss of debit cards being offered altogether. Certain institutions won’t offer debit cards because it is not profitable for them.

With debit cards looking less profitable, banks will find revenues elsewhere. Gwenn Bezard is research director with Aite Group. He says consumers can expect new fees for other banking services.

Gwenn Bezard: We are already seeing over-draft fees going up. You’re going to see more banks dropping free checking accounts.

But there is an upside for consumers too. Merchants could pass along some of the money they save in debit fees. Especially where competition is tight, retailers could ultimately shave a few pennies off their prices.

I’m Jeff Tyler for Marketplace.

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