A new rule could soon be put into place that would make using your debit card a very unpredictable process. Many banks are contemplating a cap on those charges of more than $100. Worse, some are considering putting that cap at $50.
That’s certainly going to cause major problems for those who use their debit cards to buy groceries, gas or who try to be financially responsible during the holidays and use their debit cards more than their credit cards. Couple this with the fast rising cost of fuel, and soon, our debit cards will no longer be the currency of choice.
In short, this new rule, if it comes to pass, will affect anyone who owns a debit card. Period. And it has everything to do with what’s called “interchange fees”. But more on those later. For now, many financial experts are voicing concerns that these new changes will significantly compromise what little bit of financial security many Americans have regained over the past three years.
It also means for those with less than ideal credit may be reaching for their Visa or MasterCard that has a high interest rate. Of course, cash is always an option, but cash costs too if it’s ever deposited into your bank – withdrawing it means ATM fees, which could be on rise as well. Clearly, it costs money to have money.
It’s those interchange fees that are the driving force behind these new considerations. Basically, every time you use your debit card, your bank charges the merchant or retailer around forty-four cents for each transaction. That forty four cents, of course, might be paid by that merchant, but the consumers are ultimately the ones who pay for it. Out of that money, which equates to around $16 billion a year, the banks pay the card carrier such as Visa or MasterCard and other fees to various partners.
It’s been lucrative for all involved – until now. Remember the Credit Card Reform Act that went into effect one year ago? That, along with the Dodd-Frank Wall Street Reform and Consumer Protection Act, has limited how much banks and credit card companies can charge. So that forty four cents has now been knocked down to around twelve cents. Not only that, but the federal banking regulations could soon drive those fees even lower.
For big credit card carriers such as Chase and Bank of America, it could easily mean a loss of $1 billion each year. The options would mean an “increases in the costs of everyday debit card transactions, a limit in payment choices and impacts made to industry innovations”, according to Bank of America’s statement released this week. In other words, the consumers will shoulder these inconveniences and any new fees associated with those inconveniences.
It gets worse for consumers, too. If debit card transactions are indeed limited, that means more of us will be forced to once again begin writing checks. Of course, the big-name banks are also considering an increase of monthly fees to the tune of $15 per month, per account.
For those who still use their debit cards to withdraw cash at an ATM, it could mean an additional $3 flat fee whether you use it once or a dozen times. The thought of using a regular credit card to purchase groceries doesn’t sit well the most disciplined folks, but for those who are paying a higher interest rate, the problems are only compounded further. The bottom five percent of Bank of America’s customers (“bottom” being defined as those most at risk) have just been hit with a $59 annual fee.
In the Short Term
For now, things will remain as they are. But don’t rest too easily; regulators are meeting in April and if all goes well, these changes could go into effect as soon as July. Most banks are in agreement and say it’s the only way they can remain viable; however, there are a couple of banks that say they have no immediate plans to follow suit, including CitiBank. It says it has no plans on making changes or putting into place any caps.