Issue of the week: Debit-card fees

last updated 8 January 2015

Regrettably, Round 1 on debit-card fees goes to the government, said Bloomberg.com in an editorial. Despite an “elaborate, expensive, and sometimes disingenuous” lobbying campaign, the banking industry couldn’t convince the Senate last week to turn back a key provision of last year’s Dodd-Frank financial reform law. As of July 21, the Federal Reserve will start capping transaction fees at 12 cents, down from an average now of 44 cents per sale. “Their shenanigans aside,” the big banks were right to oppose the measure. “Why in the world should the government set the price for using a debit card?” We usually let the market itself set prices—“an arrangement that works pretty well.” But instead of just making that “honest argument,” the banks conjured up “plagues of locusts” and lost.

Just don’t think they’ve actually given up, said David Benoit in WSJ.com. Last week, the industry said it would probably take its battle to the courts. There its lawyers will argue that the Fed has misinterpreted the law by applying “a hard cap on fees,” and that the cap it imposed is “illegally low.” The banks can expect the same vigorous opposition from the retail lobby that they faced in the Senate, said Edward Wyatt in The New York Times. Retailers paid more than $20 billion last year to the largest debit-card networks, Visa and MasterCard, and are happy to be rid of that burden. Just as the banks claimed the new rules would harm little banks and bolster giant retail companies, “retailers framed the debate as pitting JPMorgan Chase, Bank of America, and Wells Fargo against mom-and-pop” stores. It’s not clear how much Main Street storefronts will save from the new law, but Home Depot stands to pocket $35 million a year.

But what about the rest of us? asked Blake Jones in the Glens Falls, N.Y., Post Star. “The vote was a win for retailers, but it’s less clear what the impact will be for consumers.” Sure, maybe retailers will pass along some of their windfall, but banks are almost certain to look for new ways to make up for the drop-off in debit-transaction revenue. “Free checking accounts may be one step closer to extinction,” said Candice Choi in the Associated Press. Some other possible results: higher ATM fees, fewer debit-card rewards, even caps on debit-card transactions. In other words, the consumer could be the loser after all.