October 1st came and went with most consumers focusing on things like college football and cooler weather. What you probably did not know is October 1st effectively signified the first day of what has been coined the “Durbin Amendment.” The Durbin Amendment is a provision on the Dodd-Frank Wall Street Reform and Consumer Protection Act that caps the fee amount a bank can charge a merchant/retailer for accepting a debit card.
In the past merchants paid an average of about 44 cents each time they accepted a debit card. This fee, often called a swipe fee or an interchange fee, is paid for by the merchant (the store), not the shopper (you). Yes, it’s very likely that the fee is somehow loaded into the cost of the merchandise that you’ve purchased but there is no line item on your receipt that reads, “Swipe fee: $.44.” Point being, this new Durbin Amendment does not protect you from fees. It protects merchants from fees.
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The problem is that the cap on these debit card swipe fees is going to cost the banking industry between $6 and $10 billion per year. This is a large enough amount of money that they’ve begun a move to offset their loss of income…and we always know who subsidizes those costs…we do.
Wells Fargo (NYSE:WFC), SunTrust (NYSE:STI), Chase (NYSE:JPM) and, most recently, Bank of America (NYSE:BAC) all announced new fees, but have since decided to rethink where they will extract their pound of flesh.
The reason tried to tie these new fees directly to a debit card account rather than to another component of your banking relationship (ATM, Foreign transactions, paper statements, etc.) is because the banks are attempting to redirect your plastic usage away from debit cards back to credit cards where there is no cap on swipe fees. And, just because you don’t bank with a financial institution that is implementing a new fee it doesn’t mean you’re out of the woods.
Many people are questioning why debit card fees were capped in the first place. There’s disagreement as to the real reason. One this is certain; consumer groups were not calling for a cap on debit card swipe fees. In fact, most consumers don’t even know what a swipe fee is OR the fact that the merchant pays it. Point being, this isn’t a consumer protection statute but it has resulted in an increase in consumer’s costs to carry and use a debit card.
These new fees will result in a variety of consumer actions including, using credit cards instead of debit cards, using cash or checks instead of debit cards, and consumers moving accounts to financial institutions that are not charging fees. Banks (NYSEARCA:KBE) clearly want to see consumers migrate away from debit card usage and back to credit card usage where there is no swipe fee cap. The fees on credit card “swipes” are held in check by competition across the various credit card networks and not by legislation.
The million-dollar question is…what should consumers do if they’re being charged fees to use debit cards? If you are a responsible plastic user then moving your charges to a credit card is fine. The fees being tested (and charged in several cases) by some of the banks are strategically set so they don’t act as an incentive to move your business elsewhere BUT if paying for access to your own money is unacceptable to you then moving your checking account to a credit union will solve your “fee” problem.
John Ulzheimer is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.