Thought the fight over debit card fees was more or less settled when the Senate voted on the issue? Think again. Retailers hoping they were about to get lower payment processing fees are in for another skirmish as negotiations between the House and Senate begin on a final version of the financial regulatory reform bill.
Banks were caught napping by the Senate move but are fighting back hard. The amendment -- introduced by Sen. Dick Durbin (D-IL) about a week before the broader overhaul passed in the Senate -- would give the Federal Reserve power to set interchange fees on debit card transactions. Interchange fees are the fees paid by merchants to card companies for processing shoppers’ purchases made with debit or credit cards. Banks say the charges are simply the cost of doing business to process card payments, but retailers say the fees that banks and card issuers set are too high. Right now, fees on debit card transactions average about 1%, but they’re likely to come down if the Fed gets control.
Opponents of the Senate language have been making progress, and some states have now jumped into the fray. Many state governments issue debit cards to distribute unemployment, food stamps and other benefits, an option that saves each state hundreds of thousands of dollars per year because they don’t have to print checks and mail them. States fear that lower interchange fees would lead them to pay more for the cards, which could force them to stop using them.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
States are also questioning part of the bill that would allow retailers to offer discounts, free gift wrapping or other perks to customers who pay with cash. The bill would let merchants set minimums on credit -- but not debit -- purchases. Right now, merchants’ contracts with card issuers allow the latter to fine retailers thousands of dollars for giving preferential treatment to customers who use cash. States worry that giving retailers the new freedoms would hinder shoppers from using their government benefits on small purchases -- such as food stamps to buy milk, for example. States say that, despite efforts to limit the minimums to credit transactions, cashiers might not be able to tell the difference between a credit card and a state issued debit card.
The heavy lobbying evens the odds on what once seemed a slam dunk and guarantees a fierce debate. Retailers insist that lowering fees would lower prices for consumers, since it would shave off some costs for the merchants. In reality, analysts say, shoppers would most likely see the difference at discount retailers, where price competition is paramount. Other retailers would be tempted to pocket the difference.
And banks will continue to demand that lawmakers tweak how the Fed determines the interchange fees. They want the law to require the Fed to take account of more of banks’ overhead costs for payment system infrastructure, fraud protections and the like. Right now, the bill explicitly says that only the “incremental cost” incurred by the issuer for an individual transaction can be considered.
Small banks and credit unions are particularly concerned about the prospect of lower fees. Although they would be exempt from the rules, small banks say they would have to lower their fees anyway to ensure that merchants continue to accept their cards, and small banks say they need the higher interchange rates to stay afloat.
Plus banks fear that new rulemaking powers for debit cards would open the door to similar action on credit cards. Interchange fees are, on average, up to a percentage point lower for debit cards than for credit cards because debit cards require fewer protections against fraud and loss of repayment, since in theory the funds are coming from a checking account and aren’t a loan.
-
The Upscale Upgrades Coming to a Country Club Near YouYoung country club members expect more from their fees than access to a golf course. From teen rec rooms to red-light therapy, this is how clubs are upgrading.
-
I claimed Social Security six months ago at 62, but my checks are too small. What are my options?We asked financial experts for advice.
-
Apple Readies for AI Upgrade with New iPhonesThe Kiplinger Letter The tech giant has stumbled when it comes to artificial intelligence, but a new batch of iPhones will help it make headway.
-
Japan Enters a New Era of Risk and ReformThe Kiplinger Letter Japan has entered a pivotal moment in its economic history, undertaking ambitious policy and structural reforms to escape from decades of stagnation.
-
How Consumers Are Tinkering with Cutting-Edge AIThe Kiplinger Letter Companies launching artificial intelligence tools are jostling for consumer attention. Some products are already building a deep connection with users.
-
After Years of Stagnant Growth, Hope Emerges for EU EconomyThe Kiplinger Letter Can a German fiscal push outweigh French political peril?
-
Small Businesses Are Racing to Use AIThe Kiplinger Letter Spurred on by competitive pressures, small businesses are racing to adopt AI. A recent snapshot shows the technology’s day-to-day uses.
-
How AI Puts Company Data at RiskThe Kiplinger Letter Cybersecurity professionals are racing to ward off AI threats while also using AI tools to shore up defenses.
-
AI Start-ups Are Rolling in CashThe Kiplinger Letter Investors are plowing record sums of money into artificial intelligence start-ups. Even as sales grow swiftly, losses are piling up for AI firms.
-
What is AI Worth to the Economy?The Letter Spending on AI is already boosting GDP, but will the massive outlays being poured into the technology deliver faster economic growth in the long run?
