Consumers May Get Hit With Higher Debit Card Fees

debit cardsNew rules proposed by the Federal Reserve for debit card transactions may mean consumers end up paying significantly more for using their cards, while big retailers such as Walmart (WMT) save money.

The Fed has issued proposed rules limiting debit card transaction fees to a "safe harbor" charge -- meaning it would not be disputed -- of seven cents per transaction, and a maximum of 12 cents. The higher costs would have to be justified by a calculation of the actual costs of processing a transaction.

The new limits are significantly below what banks have been charging the sellers -- fees of up to 2% of the actual transaction. So a $200 payment with a debit card earned the issuer $4. Banks have earned an estimated $50 billion a year through such fees.

Couldn't Be Better for Retailers

Following publication of the proposal, shares of Visa (V) and Mastercard (MA), which run the transaction networks, declined sharply. Visa was down 12% and Mastercard was down 9.5%.

Gerri Detweiler, personal finance expert for, says the consumer could soon be facing higher charges.

"I think we could see annual fees for debit cards, and we could see additional pressure on free checking," Detweiler says. The so-called interchange fee banks charge to sellers on debit purchases had been used to subsidize free checking accounts. That may now change, she says.

While the new rules limit how much banks can charge retailers, they place no limit on how much banks can charge consumers. Presumably, this means consumers might face a new transaction costs for using their debit cards. But big retailers such as Walmart and Target (TGT) will see a significant reduction in the amount of money they pay to the debit card networks. According to the Federal Reserve, more than 35% of all noncash transactions are now paid by debit card.
"Retailers should be jumping for joy, this is what they've been asking for," Detweiler says. "For them it couldn't get any better than this."

Consumers Need to Opt In

A requirement to lower debit card fees was included in the Dodd-Frank financial regulation reform law, but the legislation left it to regulators to determine how low the fees would be set. The Fed's proposal calls for interested parties to comment on the idea before it's enacted as a rule.

The Fed also said it was proposing to end the Visa-Mastercard monopoly on the transaction networks, with two alternate networks for each type of transaction: signature debit cards and those that use pin numbers. Signature transactions typically earn a higher fee.

Banks have already been under pressure because new rules set a limit on how much they can charge for overdrafts with debit cards. The Fed rules prohibit banks from charging any overdraft fee on ATM transactions and debit card transactions unless the consumer "opts in" and actively agrees to the charges. If the cardholder doesn't opt in, the transaction must be rejected if the consumer's account doesn't have enough money in it.

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The Durbin Amendment mandated a transfer of revenues from the banking to the retail industry and that has always been pretty clear. The amazing thing is that now the industry that was the transfer's recipient is complaining for not receiving enough and are suing the Federal Reserve. If the retailers got all that they wanted, we should ready ourselves for even higher costs of banking and will be getting fewer services. The good thing is that the Federal Reserve is unlikely to lose this lawsuit.

April 10 2012 at 5:42 PM Report abuse rate up rate down Reply

the credit card companies have been taking huge advantage of small business for a long time....its about time that they are being more regulated...belive me..thier unscrublulous behavior of thievery,,,,is putting small businesses out of business...I just put a NO CREDIT CARDS ACCEPTED on my shops door...and the fees well they come out to more like 4% of every your bank account is at the mercy of the merchant proccesor..who can just come in and take what they think ...with out you knowing until its to late....try getting your money back..

December 19 2010 at 11:38 AM Report abuse +1 rate up rate down Reply

We were incouraged to start saving all we can. Now the gov wants us to spend all we can.

December 18 2010 at 2:04 AM Report abuse rate up rate down Reply

For every action there is a re-action and while I doubt that Newton had the banking system in mind, it applies there as well. Given all of the power that Congress has bestowed on the Fed in the last twenty years, it is good that they choose to do something, however small. Regulation is undesirable, but with the repeal of Glass -Stegal the banking industry has brought nothing more than misery upon the larger amount of the public. The Fed was empowered to stop predatory lneding, did nothing, and we still have a housing mess. After the collapse the Fed and Treasury bailed out the bankers to avoid economic chaos. One would think that this event should have sent shock waves through the industry resulting in a more conservative approach. In fact it did. They stopped lending and jacked all credit card rates, fees, etc. to record high levels when their libor rates were at record lows. The public outcry forced Congress to intervene. Where was the Fed? So far, the Fed's actions and policies appear to favor the bankers and wealth and do little for the "publick". The spelling is colonial but they may have had something as if one puts and "ed" on it about describes the middle class.
Let us see what new charges will emerge as if it is not coming from business it will be coming from the customer.

December 17 2010 at 2:06 PM Report abuse +1 rate up rate down Reply

The banks just can't get enough, even after Obama is about to give them the keys to the treasury.

December 17 2010 at 1:13 PM Report abuse +3 rate up rate down Reply

The banks just can't get enough, even after Obama is about to give them the keys to the treasury.

December 17 2010 at 1:13 PM Report abuse rate up rate down Reply
Greg & Shannon

Every time the government steps in we get hurt. More regulation, more money out of our pockets. They messed with credit cards and we pay more interest. Oh but wait, they in turn have to tell us how long we will be in debt. Nice trade. They sue oil giants. Now we get to pay more at the pumps. Nice trade. They messed with heath care, now we get to pay higher premiums. Nice trade. I'm starting to see a trend.......

December 17 2010 at 12:50 PM Report abuse rate up rate down Reply
1 reply to Greg & Shannon's comment

It's 3 card nonte to keep the ignorant beleiving that it is always someone else who is paying.

December 19 2010 at 12:35 PM Report abuse rate up rate down Reply

The federal government hyppocrits tell people they can't display the Ten Commandments in a government building,or having a Nativity scene on government property(which is paid and bought for using taxpayer dollars),but it's A O K to let a non-government,private company such as the federal reserve to dictate or regulate commerce in this country.If i'm not mistaken,isn't that against the Constitution.Only Congress shall have the power to regulate commerce,not a private company owned by a bunch of ly ing,greedy pathetic bankers,unless you are politicians getting your pocketts lined.

December 17 2010 at 12:10 PM Report abuse +2 rate up rate down Reply

They got ya. You say don't use credit but, unfair or not, you don't exist without a redit card. I haven't bought anything on credit for 10 years and now I'm in trouble because I want to buy a repoed house. No credit score, none whatsoever.

December 17 2010 at 11:58 AM Report abuse +4 rate up rate down Reply
2 replies to cayce58's comment

This article was about DEBIT cards, not credit cards. Debit cards have no effect on your credit report or score. Only fools use debit cards. I have never had one. I put almost everything I buy on my CREDIT cards. The card companies even give me money back from time-to-time.

December 19 2010 at 12:43 PM Report abuse +1 rate up rate down Reply

Please explain why you feel that only fools use debit card. The same could be said of credit card users. Debit cards, at least, don't get you in debt.

Remember: All that is necessary for evil to triumph is for good men to do nothing.

December 19 2010 at 4:16 PM Report abuse +3 rate up rate down Reply

The Fed is a PRIVATELY OWNED BANK, operating as a quasi-national bank . . . it is all such a horrific contradiction. The Fed, by law, is autonomous from our government . . . they do whatever they chose to do; and in essence, and LITERALLY, they set and control our national economy by these types of edicts. The Fed has a PARAMOUNT INTEREST in doing that which benefits their private owners ahead of all ofhter considerations. To heighten the questionable credibility of the Fed even more, by law, the Fed is not required (and is prohibited) from dislosing thenames of the PRIVATE OWNERS or their ownership interests in the Fed. Isn't this more akin to being a "DARK and EVIL EMPIRE" operating for self interests behind the scenes, while fostering the image that they are a "government entity". The American people have been so duped in all of this that the vast, vast majority of Americans do not know about or nderstand the corrupt forces behind the Fed . . . THEY ARE"the wealthiest of the wealthy"; and everything that they do is to protect and/or to enhance their personal wealths. That is why the TARP legislation was used to save their financial institutions and to CYA their role in the finacial disasters that have almost crashed our economy.

December 17 2010 at 11:41 AM Report abuse +2 rate up rate down Reply