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Debit Card Fees: Where Do You Stand?

The already heated debate over the Federal Reserve’s plans to reduce and cap the charges on debit cards is getting even hotter. Several letters have been fired off by various groups to lawmakers this week either supporting (or not) the Fed’s new rules, plus one rather fierce letter going in the opposite direction, from a lawmaker to a banker.

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The latter is a lengthy 2,358-word letter from Dick Durbin, a Democratic Senator in Illinois, to JPMorgan Chase Chairman and CEO Jamie Dimon.

In this missive, Durbin lets rip: “Nearly every other industrialized country has established reasonable regulation over their debit systems, and these countries have achieved improved efficiency, lower fraud, and consumer benefits. The time has come for reasonable reform of the dysfunctional U.S. debit interchange system, and my amendment will make that reform a reality.”

Durbin’s amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which takes effect July 21st, instructed the Federal Reserve to set a standard for debit card swipe fees. The Fed has proposed a cap of 7-12 cents per transaction.

Why should consumers care about debit card fees if the retailer is taking the hit? As it stands, every time you swipe your debit card in a store, the issuing bank gets a fee, which is calculated as a percentage of the sale. Some consumers dislike the fee because they believe retailers factor it into their prices as a stealth tax; others fear banks will compensate for the cap by introducing higher charges elsewhere.

JPMorgan Chase declined to comment, and referred Pay Dirt to Dimon’s annual letter to shareholders on April 4th to which Durbin was responding. In it, Dimon described Durbin’s amendment as “price-fixing at its worst.”

The correspondence doesn’t end there: the American Bankers Association declined to comment on Durbin’s latest letter, but ABA President and CEO Frank Keating responded to a similar letter from the Durbin two months ago. In his own hefty 1,177-word statement on February 15th, Keating wrote: “The notion that retailers have no choice but to participate in the card payments system ignores a key leveraging tool that retailers do in fact have at their disposal: they can offer their customers discounts for any non-card transaction.”

The National Retail Federation disagrees. “As a practical matter, becoming an all-cash establishment is not an option,” says Mallory Duncan, senior vice-president, general counsel at NRF. “Card penetration is so high it’s virtually impossible to run a retail or restaurant business without taking some form of plastic.” He says it costs the merchant more to take debit cards on lower priced transactions: “Debit card fees are the ones that are price-fixed.”

Pay Dirt readers, are you in favor of the debit card fee cap? Comments, emails and even old-fashioned letters are all welcome.


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About Pay Dirt

  • Pay Dirt examines the millions of consumer decisions Americans make every day: What to buy, how much to pay, whether to rave or complain. Lead written by Quentin Fottrell, the blog examines these interactions, providing readers with news, insight and tips on shopping, spending, customer service, and companies that do right – and wrong – by their customers. Send items, questions and comments to quentin.fottrell@dowjones.com or tweet @SMPayDirt.