The Federal Reserve is preparing to issue its final rule on the controversial debit card "swipe fees" Wednesday, a move that could potentially lead to less favorable interest rates on high-yield checking accounts and unattractive terms and yields on other banking products and services.

In its December draft proposal, the Fed suggested capping debit card interchange fees, or "swipe fees," at 12 cents per transaction -- a move that critics say would slash revenues by 75% for financial institutions and other companies that process debit card transactions. Currently, merchants pay financial institutions an average of 44 cents to 45 cents per transaction, says Patricia Hewitt, director of debit advisory service for Mercator Advisory Group.

The Fed's anticipated action is in response to the Durbin Amendment, which is part of the massive Dodd-Frank Wall Street Reform and Consumer Protection Act that became law in July. The Durbin Amendment is slated to take effect on July 21 and will reflect the Fed's final rule on debit card interchange fees.

"When the Federal Reserve meets Wednesday, we doesn't expect a material change from their earlier proposal of 12 cents," says Hewitt, who served as lead author for her firm's report, The Durbin Amendment: Impact Analysis. She added it's unlikely the Fed will consider raising the bar to 24 cents per transaction.

Making It Harder to Get High Yields


With their revenue expected to be squeezed, financial institutions may dramatically alter the interest rates they pay on high-yield checking accounts or bump up the number of debit card transactions an account holder needs to make in a given month in order to maintain such an account, notes a Bankrate.com 2011 report on high-yield checking accounts.

According to its survey of 155 financial institutions, Bankrate found the average interest rate paid on a high-yield checking account was down to 2.56% this year, compared with 3.3% last year.

The declining yield is a byproduct of simple supply and demand. Financial institutions are finding themselves flush with cash, as customers deposit funds into high-yield checking accounts and basic savings accounts. But financial institutions are facing a tough time finding qualified customers who want to borrow the money sitting in their vaults.

High-yield checking accounts, which have seen their yields decline, still pay more than a traditional checking account yield of 0.1%. Interest rates for high-yield checking accounts are comparable to those from certificate of deposit, but consumers have the added benefit of instant access to their money.

Banks do make consumers jump through a few extra hoops to get those high-yields, however. A majority of these accounts require customers to make 11 debit card transactions a month and use some of the institution's other services like direct deposit or online bill pay -- services that provide other sources of income for the bank.

But should the Fed require a 12-cent cap on debit swipe fees, financial institutions would need to bump up their per-month transaction requirements for high-yield checking accounts to somewhere in the neighborhood of 37 a month to generate a similar amount of revenue, estimated Claes Bell, a Bankrate.com reporter.

Requiring customers to sign up for a greater number of services to obtain a high-yield account may be another action institutions may look at, says Hewitt. "I think the bundling of services and relationships with consumers will change," she says. "Financial institutions will be looking more closely at the profitability [of high-yield checking accounts] in a different way."

She added although financial institutions and card processors could see their profit margins squeezed with the Durbin Amendment, it's unlikely they would exit high-yield checking accounts.

"They want consumers who carry high balances," says Hewitt. "We may see them require a higher minimum balance for an account, or require customers to have a second relationship or account with the bank. They're looking for a second revenue stream."






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hustonlaw

"We doesn't..."?

June 28 2011 at 5:12 PM Report abuse rate up rate down Reply
Glyn

"we doesn't"?

June 28 2011 at 11:58 AM Report abuse -1 rate up rate down Reply
DaltonCooper

High-yield?????????????? Someone does not know what the right hand and left hand are doing..........we are figuring retirement funds paying 8% to be fully funded..............I would imagine that all the retirement accounts that are not fully funded would total trillions..................who is going to pick up this difference?(the taxpayers naturally-you and me)............how much longer can this country keep its head in the sand?..............."be fruitful and multiply" was the only postive command given in the Garden.
To do this we must care for the future and not keep spending and spending what we do not have and cannot acquire..............we are simply ruining this country..............

June 28 2011 at 10:42 AM Report abuse +2 rate up rate down Reply
daveswrath0704

people dont care if Bank make Profit it the GREED that dont like why do they think every years they MUST make more profit off are money its not there money in the first place it are money we let them hold it on till need need it ! If they want more profit start at the top %20 cut there pay sets the max pay for CEO at 500,000 and go right down the line and watch how much profit they would have !!!!!!!!!!!!!!!!!

June 28 2011 at 10:32 AM Report abuse +2 rate up rate down Reply
ldavid217

Barney Frank helped put into motion the World Financial(subprime) crisis. He was one of the creators of the Financial reform act(2010). When are the people of his State going to wake up??

June 28 2011 at 10:18 AM Report abuse +2 rate up rate down Reply
David

And now the banks will cut interest rates? How can they cut interest rates when they already at 0%. But the banks will show billions of profit every quarter.

June 28 2011 at 10:11 AM Report abuse +1 rate up rate down Reply
SPQR

The banks need to cut the salaries of the fat cats. Without a doubt that is where all their profits are going, besides building new branches every day on every street corner. I had to save to buy a house and put 20% down. Maybe they should have classes for Americans on how to save money. We don't need most of the Chinese crap that we buy every day. I am going to save some money right now!!!!

June 28 2011 at 10:06 AM Report abuse +1 rate up rate down Reply
bwyou812

The tax payers bailed out these banks, and it still was not good enough for them to be happy with that.
Hope next time they all file chapter 11 bankcrupty like any other business. Correct me if I'm wrong but
the deposits in bank are insured up to 100,000.00. Might not be a good thing for some with big balances
in banks but spread your wealth into many bank deposits.Plus the rich already are taxed the least and
we the little middle class would be the ones to cover again thier riches. Hope the Federal government
stops this debit card fee!! Most banks charge a monthly maintenace fee, overdraft fees etc.... making
billions off this alone. This all comes from the fact that america have been getting away from the credit card
and they have to find new ways to pray on the consumer!!!!!

June 28 2011 at 9:51 AM Report abuse +1 rate up rate down Reply
1 reply to bwyou812's comment
Frederick

Sorry but the Insured amount is $250,000 and has been since 2007-2008 & until further notice. Yes, the taxpayers did bail out many banks but the banks had to give the government tons of Preferred, class A, stock and a guaranteed premium of almost 5-10%. If an account has not had a balance problem there is no need to buy into the Overdraft fee junk. The rich (who are you referring to? Those who make $50,000 a year, $75,000, or $100,000?) pay the most in taxes because income tax is progressive. Example: You earn $25,000 you pay "X" number of dollars in taxes but if you cross the next tier you pay "X" number of dollars plus an additional amount based upon the $ amount you earned when you crossed the next tier line, etc. FACT: Americans owe more money in credit card balances than ever before. Yes, the balances are not going up as fast as in the past but people are still using them at an incredible rate.

June 28 2011 at 10:34 AM Report abuse +1 rate up rate down Reply
ljmjr48

trash this worthless bill and abolish the f-ing fed

June 28 2011 at 9:44 AM Report abuse +5 rate up rate down Reply
Euskalduna

Join a Credit Union. Bankers hate CUs for a good reason. I use credit cards only and pay in full every month. My debit card, which I did not request but the CU sent me, ended in my garbage can cut in half. When they issued the debit card, they sent me a letter saying that the federal government required my signature so that the CU (or bank) could cover my overdraft. When something sounds like a reuse of some sort to get to my money, my antennae go up and refuse the "service". Ultimately I know it is going to cost me. One does not have the time to sort out what is good for me and what is good for them. Most likely, bankers will benefit.

June 28 2011 at 9:40 AM Report abuse +1 rate up rate down Reply