How will swipe fee limits affect credit card holders?

By , CardRatings contributor
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Merchants and credit card companies are still fighting it out over the planned reduction of swipe fees, a rule by the Federal Reserve that will limit the excessive fees currently charged by banks and credit card companies with each swipe.

The proposed cap is being promoted as a way to save consumers money at retail stores, restaurants, and anywhere else they make purchases. But card companies argue that consumers will never see the savings; the cap will slash company earnings and put a "$12 billion gift" into retailers' pockets.

The truth about credit and debit card swipe fees

While the Federal Reserve rule will limit the amount that can be charged as a debit card swipe fee--from an average of 44 cents down to a cap of 12 cents--it will not affect credit cards.

Fees for standard credit cards currently hover around 2 to 3 percent, while the cost of swiping a premium card, such as an American Express (American Express is a CardRatings.com advertiser) rewards card or other top-rated credit cards, can go as high as 4 or 5 percent for retailers. Merchants then pass that cost on to their customers as higher prices paid across the board, even by those who don't purchase with plastic.

Changes for consumers when swipe fee changes are passed

Although credit card swipe fees are not set to change just yet, debit card fee reductions are coming--and credit card customers could be affected in a number of significant ways.

Banks may start charging fees for the use of debit cards, which would push many people to use either credit cards or cash. Or consumers might see lower interest rates offered with standard checking accounts that offer debit card access. It could also mean changes at the cash register, such as incentives for debit card users.

Some gas stations already offer two prices: one for cash, and a higher price for customers paying with debit or credit cards. When the new rules come into effect, consumers may even see three prices (cash, debit, and credit), as well as incentives for those who pay with debit or loyalty cards. To offset this push away from credit, the best credit card deals are likely to get even better as banks encourage users to pay that extra percentage in order to receive rewards and bonuses.


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