New interchange fee regulations go into effect this Saturday, October 1, but many consumers are already experiencing some painful consequences.
New rules that will cut the cost of the interchange fee for merchants have already helped trigger more fees for debit card use, some monthly charges on checking accounts, eliminated most debit card reward programs, and may end the convenience of using a debit card for small purchases.
Consumers may give little thought to the interchange fee charged every time they swipe their debit card, but the fee can take a significant bite out of a retailer’s profit for certain transactions. Before the recent legislation, the interchange fee averaged 44 cents per transaction. Now, the reduced fee will be 21 cents plus an additional amount to cover losses from fraud. The Fed’s rules are part of the 2010 Dodd-Frank financial overhaul law, and the changes only apply to debit cards, not credit cards.
While retailers celebrate the arrival of interchange fee regulations that they fought hard for, banks are forcing consumers to help make up the lost revenue. It would be nice if retailers lowered prices to pass some of their savings on to consumers.
While merchants celebrate, banks scramble to find ways to replace billions of dollars lost by one more federal regulation. Banks can’t absorb this loss and, just as they have warned, they are creating new fees to raise revenue.
Here are ways some ways that banks have recently made up for the loss of revenue from regulations:
New Fees on Debit Card Usage
Many banks are testing a monthly fee on consumers who use their debit card. Wells Fargo is testing a $3 monthly fee for debit card users in five states: Georgia, Oregon, New Mexico, Nevada and Washington. Chase tested a monthly fee for debit card users in Wisconsin. In October, SunTrust will add a $5 monthly fee for debit card purchases on its basic checking account, and Regions will charge $4 per month for debit card purchases. Consumers can still find banks that do not charge a fee for debit card usage, such as Citibank, Capital One, and many smaller banks or credit unions.
Less “Free” Checking
Only 45% of non-interest checking accounts are free, down from 65% in 2010 and the peak of 76% just two years ago, according to Bankrate.com’s 2011 Checking Study.
Many banks advertise free checking, but the fine print may contain stipulations. The most common are the offer to waive monthly fees as long as your balance is above a designated amount, or for you to deposit a specific amount each month. The fee could also be waived if you have multiple accounts.
As an example, Bank of America is shifting checking customers over the next year into new accounts that have higher balance requirements or other conditions to get free checking. One new product is called Enhanced checking and customers must make deposits totaling $2,000 a month, keep at least $5,000 in various accounts, or use a bank credit card at least once a month to avoid a $15 monthly fee. An eBanking account lets customers avoid a $12 monthly fee if they sign up for paperless statements and make all deposits and withdrawals online or through an ATM.
Monthly Statement Costs
Banks encourage customers to use online statements by charging to mail paper statements. BBVA Compass will charge consumers $3 per month to receive a paper statement on many of their accounts.
Reduced Debit Card Reward Programs
Many customers used to receive rewards for using their debit card. Some banks have already reduced or eliminated their debit rewards program. Wells Fargo, SunTrust, Chase and U.S Bancorp are among those who have made significant changes to their rewards programs. Citibank and U.S. Bank continue to offer reward points for debit card usage if you have a personal checking account linked with qualifying products and services. Issuers continue to offer strong rewards on credit cards.
Possible Increases in Merchant Fees for Small Transactions
According to the Wall Street Journal, Visa and MasterCard are discussing raising fees merchants pay for small-ticket debit purchases to 23 cents per transaction. Merchants currently pay about 8 cents for small-ticket items. Some retailers, especially gas stations and convenience stores, are setting $5 or $10 minimums for a debit card purchase.
Consumers should pay close attention to their bank notices and account statements. That is how banks are informing their customers of these changes. It is the our responsibility as consumers to be aware of these changes. Being uniformed could cost a lot of money.