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Community Banks Not Ruling Out Debit-Card Fees

Community banks and credit unions may also soon impose debit card fees.

Consumers looking to switch to small community banks and credit unions to escape the newly imposed debit-card fees may want to think twice. While smaller institutions are technically exempt from the new federal regulations which prompted Bank of America and others to impose the charges, industry experts say that might not last for long.

“The smaller institutions have not had to yet – ‘yet’ is the operative word,” says Jason Kratovil, a vice president at the Independent Community Bankers of America.

Even though the new debit-card rules that went into effect on Oct. 1, which lower the fees retailers pay banks when customers shop with their debit cards, apply to banks that have at least $10 billion in assets, smaller banks could be forced to follow suit. Community banks and credit unions say they worry that they too could start receiving less in debit card swipe fees.

The reasoning is complicated, but here’s how it breaks down: Major debit card processors, like MasterCard and Visa, have said they will institute a two-tier system – one for the larger banks that will be receiving less in swipe fees and another tier for smaller institutions. But because the larger banks account for a bigger chunk of the processors’ business, there’s concern that a two-tier system might not stay in place for a long time. “Our concern remains that the market might eventually force smaller institutions to accept lower debit card revenue,” says a spokesman at the Credit Union National Association. If the smaller banks and credit unions end up receiving less in swipe fees, they too might have to start charging their customers for debit cards.

The debit-card processors aren’t providing much clarity. A MasterCard spokesman says the company will operate within the debit interchange rates imposed by the federal government and that the company will continue to assess the evolving landscape. Visa declined to comment.

To be sure, the concerns raised by the smaller institutions are hypothetical. It remains to be seen whether free debit cards will remain the status quo at community banks and credit unions. For now, industry experts say they are. Offering free debit cards is one way they can compete with larger banks. But while most of their debit cards are free, consumers looking for a robust rewards program might have to shop around. Not all credit unions offer debit cards. And only about 10% of credit unions with debit cards offer rewards programs, according to CUNA. While that’s up from 5% three years ago, it still means consumers will have to do more legwork to find a truly generous debit card.


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  • 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 or tweet @SMPayDirt.