Brace Yourselves, Consumers: How Financial Regulatory Reform Will Impact You

Debit Card Fee Provisions Will Change the Way You Use - and Pay For - Your Debit Card

Jun 29, 2010, 18:31 ET from Electronic Payments Coalition

WASHINGTON, June 29 /PRNewswire/ -- Tomorrow, the U.S. House of Representatives is expected to vote on a sweeping overhaul of financial regulations – but Wall Street won't be the only one seeing changes. A provision in the overall bill puts the Federal Reserve in the roll of setting prices and rules for the payment card market – a move that will cause consumers to pay more to have and use their debit cards. By forcing down debit card "interchange" rates – a portion of what merchants pay to accept debit cards – card issuers will receive significantly less revenue to cover their costs, and will have to turn elsewhere to make up the deficit.

"Merchants have been lobbying for the better part of a decade to shift the cost of what they pay to accept debit and credit cards onto the backs of consumers," said Trish Wexler, spokeswoman for the Electronic Payments Coalition. "Large retailers are celebrating today for the predicted profit windfall. Consumers will end up footing the bill for merchant card acceptance – a service that delivers increased revenues and guaranteed payment to retailers. It's a lose-lose for consumers."

There are three primary provisions in the Restoring American Financial Responsibility Act that will help merchants shift this cost of doing business – card acceptance fees – onto their customers' backs:

  • Directs the federal government to determine a price for debit card acceptance for large banks

Consumer Impact: By forcing down what merchants pay for the benefit of accepting debit cards, consumers will likely end up seeing higher fees to have and use their debit cards. For example, some card issuers could explore elimination of free checking, free ATM use, or rewards programs; while others may begin charging consumers user-based fees for using a debit card to make purchases. Furthermore, consumers should not plan on lower prices at the register when using their debit cards. According to a report by the U.S. Government Accountability Office, there is no proof that retailers in Australia lowered prices at the register as a result of regulators in that country forcing down the cost of card acceptance. Yet, consumers saw reduced rewards and increased annual fees following that country's interchange fee cap.

  • Allows retailers to legally establish a minimum payment amount of $10 to use your credit card

Consumer Impact: This provision will force consumers to carry cash on themselves at all times or spend more than they intended just to reach the minimum amount. If all one needs in the middle of the night is a gallon of milk and a loaf of bread from their local convenience store, they'll have to buy more just to hit the minimum – or end up having to make a trip to an ATM and perhaps pay ATM fees to withdraw cash as well.

  • Allows retailers to offer discounts for other forms of payments

Consumer Impact: None. This is a red herring. Retailers are already allowed under federal law to offer discounts for payment by cash, check, or similar means and card network rules are generally even more flexible. Despite the ability to offer these discounts now, however, very few merchants actually offer this to their customers. Instead, merchants simply want to reap the benefits of card acceptance – including increased consumer spend, guaranteed payment, and significantly reduced administrative expense associated with cash and check acceptance – while having consumers foot the bill.

About Electronic Payments Coalition

The Electronic Payments Coalition is dedicated to protecting consumer value, choice, and competition in electronic payments systems. The coalition is a broad-based group of payment card networks, financial services companies, and financial services trade associations whose primary goal is to educate policy-makers, consumers, and the media about the value of electronic payments systems — including economic growth, convenience, speed, reliability, and security — and to ensure the continued growth of global commerce by promoting consumer choice and the stability of the vast payment networks that connect millions of consumers with millions of retailers each and every day.

SOURCE Electronic Payments Coalition