Banks Test Major Changes in Debit Program Due to New Legislation

August 24, 2011, Written By Lynn Oldshue

New interchange regulations for debit cards go into effect October 1, but many banks are already adjusting to this loss of revenue by creating new fees and eliminating rewards programs.

Wells Fargo announced last week that it will test a $3 monthly fee for debit card users in five states: Georgia, Oregon, New Mexico, Nevada and Washington. Customers can avoid the fee if they don’t use their debit card or sign up for designated checking accounts. Wells Fargo is also eliminating its debit card rewards program for all customers on October 8.

Wells Fargo is not the first to make changes, nor will it be the last.

In June, SunTrust bank launched Everyday Checking that charges customers $5 per month for debit card use. Regions Bank will add a monthly $4 debit fee to certain accounts in October. In addition to testing a monthly fee for
debit card users in northern Wisconsin, Chase ended its debit card reward program for all customers in July.

Banks generally give consumers a way to avoid these fees, but they may require a higher minimum balance or a broader banking relationship. The customers who can’t afford to carry a higher minimum balance are the ones who will end up paying the fee.

Consumers can still find a bank that does not charge a fee for debit card usage such as Citibank or Capital One. In addition, 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.

Under the new rules, required by the Durbin amendment to the Dodd-Frank law, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. This cuts debit fees roughly in half as merchants previously paid an average of 44 cents per debit transaction.

Banks fought hard against the interchange fee regulations because interchange fees generated an estimated $16 billion in 2009 according to the Federal Reserve. Debit usage grew, and became more popular than credit cards. Banks even added reward programs to debit cards to entice customers to sign instead of swipe for a purchase. Signing meant the purchase went through the processing system and generated a higher fee for the bank. The interchange fee basically paid for the cost of the rewards. Rewards were higher for credit cards because banks made more money from the interchange fee on credit cards.

These new rules and restrictions cost banks billions of dollars and they have to make it up somewhere. If monthly fees for debit card users prove successful in these test markets, look for these banks to assess this fee to all their customers as well as for other major banks to follow.


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The information contained within this article was accurate as of August 24, 2011. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.


About Lynn Oldshue

Lynn Oldshue has written personal finance stories for LowCards.com for twelve years. She majored in public relations at Mississippi State University.
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