Thursday, January 13, 2011

Fed Reserve Moves To Cap Debit Card Fees

Soon processing debit card transactions could cost retailers a lot less. Under the Durbin Amendment to the Dodd-Frank Act signed into law in July by President Obama the Fed is proposing that debit card transaction fees charged to retailers would be capped at 12 cents per transaction. This is effectively an 80-90% reduction in the fees charged to merchants. 

  The proposed rule would also prohibit all issuers and networks from restricting the number of networks over which debit card transactions may be processed. 
The banks have already started scrambling, many are increasing checking account monthly fees, an imposing minimum monthly balance requirements on their customers to make up for the losses in their revenue. 
  Retailers are likely to be the biggest beneficiaries, and it could pay to offer significant discounts to customers to use their debit cards instead of their credit cards. The fee charged to the merchant for a $1,000 purchase by the consumer via a debit card would be capped at $.12, whereas the fee for the same transaction on a credit card would cost him $20. 
  Credit card companies escaped regulation of this sort by effectively arguing that banks need the fees to compensate for the risk of lending money. 
  The Fed may decide to alter the debit limits after the comment period on this proposal expires on February 22.
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