Debate continues on debit and credit card transaction fee limits

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The fight over debit and credit card transaction fees may not be over, according to advocates on both sides of the issue. The so-called "Durbin Amendment," passed along with 2010's Dodd Frank finance reform bill, forces credit card processors to cap the interchange fees they charge for debit cards at 12 cents per purchase. According to analysts at Javelin Strategy and Research, debit card spending eclipsed credit card transactions in 2009, making debit card transaction caps an even hotter issue for both bankers and merchants.

Will retailers pocket the difference?

Lobbyists for major retailers helped speed approval of the Durbin Amendment, claiming that merchants would "trickle down" the savings from interchange fees, which can sometimes approach 4 percent for some high-risk and Internet-only sales. But according to the Electronic Payments Coalition, there's no guarantee that shoppers will ever see any of that money. The industry association released a statement to reporters, claiming "this rule will hand the nation's largest retailers a $12-billion windfall, leaving consumers to pick up the tab."

Unintended consequences

Even Ben Bernanke, Chairman of the Federal Reserve, isn't entirely sure that a cap on debit card transaction fees would help consumers in the long run. In recent Senate testimony, Bernanke acknowledged that many banks planned to pass along their processing and fraud prevention costs to cardholders in other ways. In addition, a "carve-out" provision that would exempt smaller banks from the rate cap might not make much difference when most third-party processors must adopt the new rules. The rule could inadvertently cause some community banks and credit unions to abandon the debit card business, if not close down altogether.

Merchants support the cap

Meanwhile, merchants with the most exposure to high fees have called on lawmakers to stay the course. Representatives from the National Restaurant Association released an open letter to lawmakers, reminding them that debit and credit card transaction fees represent the third-largest category of operating expenses for food service professionals, trailing the cost of labor and ingredients.

What it means to you, the consumer

Barring further action by Congress, the new rules will kick in on July 22, 2011. We're already seeing the advance impact of fee limits, with some banks suspending free debit cards and free checking accounts in favor of more value-added "relationship" packages. Whether or not you believe interchange fees are fairly priced, your next business lunch or grocery run could force you to think about whether you get more value by paying with credit, with debit, or with cash.


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