subject: Debit Cards News in 2011 [print this page] Debit Cards News in 2011 Debit Cards News in 2011
In April 2010 the Federal Reserve will decide on what is a "reasonable fee" for debit card transactions as required under last year's Dodd-Frank financial regulation law. Up for grabs is an average of 44 cents per debit card swipe and that's no chump change!
Bloomberg Businessweek estimates that nearly $16 billion in annual revenue is up for grabs. In December the central bank proposed capping debit card interchange fees at 12 cents. This sent all the large banks into an uproar and started serious lobbying by banks and retailers in Washington.
The fight over debit card interchange fees made the front page of the New York Times on March 8, 2011. This article entitled, Debit Card Fees Prompt a Push Near Deadline, by Edward Wyatt looks at the fight over interchange fees and talks about the lobbyists that have been hired by both sides to try to influence the decision. As a whole the article is well rounded and factual but it is decidedly pro-bank in that it doesn't necessarily call into question big bank's motives or threats.
According to Bloomberg, big businesses such as Wal-Mart, Target and Home Depot Inc. have the most to gain. They claim they will pass the savings on to their customers. Home Depot is quoted as saying they will save an estimated $35 million a year in fees (New York Times also quotes this number, 3/8/11).
The major banks are opposed to the idea of any caps on debit card fees. Citigroup Inc. JPMorgan Chase & Co and Bank of America are leading the opposition against capped fees citing that they will have to turn around and charge consumers higher bank fees to make up for lost debit card revenue. According to an article for CNN money by Blake Ellis (March 10, 2011) big banks are arguing against the cap saying that currently interchange fees provide them with revenue to protect themselves against debit card and other forms of fraud. Without the fees the banks suggest that they will have to severely limit debit card amounts to $50- $100 per-transaction.
Ellis also quotes Joe Price, president of consumer banking for Bank of America as saying that the lower fees won't fairly compensate banks for the infrastructure and services provided to retailers. In an article for Los Angeles Times Business (March 10, 2011) David Lazarus correctly points out that interchange fees are entirely automated and that the banks are simply suffering from what he calls "sour grapes."
Ellis discusses Chase under the heading "Credit cards from hell," pointing out that Chase is already testing out $3 monthly fees for debit cards and $15 monthly fees for checking accounts in certain states and that they have stopped issuing debit rewards cards.
Ellis correctly points out in the end of his article that consumers with bad credit will be the ones most hurt by any new caps on interchange fees. These borrowers already find it difficult and expensive to get credit. Many have relied on debit cards over the last few years to facilitate transactions. If debit cards are limited these people will take the brunt of the pain.
Fox News Business (March 10, 2011) approaches the issue from an entirely different angle choosing not to comment on the controversy surrounding interchange fees directly but to look at a plan by Sen. Tester (D., Mont.) and backed by Sen. Bob Corker (R., Tenn) to delay the debit card issue for two years. In this article Fox questions the interference of government in private business. On the other hand in an article for Fox (November 30, 2010) Gary Foreman calls into question the cost of credit card fees charged to merchants comparing the 24% charged by banks to merchants to the rates charged by "loan sharks."
The debate over interchange fees promises to continue to be a hot topic for the next six weeks. It's obvious from all the controversy that exactly what the final outcome will be to the law, consumers, banks and merchants is largely unknown and unpredictable.
It's interesting and informative to reflect on the different ways members of the established media have chosen to cover this story. A year ago the tone of the New York Times article would have been decidedly different. Yet it is a bit difficult to stomach the "sour grapes" and "credit cards from hell," quotes as unbiased journalism.
