The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law this summer by President Obama, introduced a number of financial reforms for big business as well as new protections designed to shield consumers against potential abuses.
One of the act’s proposals, which has not yet been approved, would lower debit card interchange fees by as much as 70 percent (as CreditBloggers reports). Here’s a look at what that means for you and how it might change the face of personal finances.
How Will Lowered Debit Card Fees Affect Your Finances?
What’s known as an “interchange fee” or a “swipe fee” is the amount of money a merchant pays for every customer who uses a debit card to pay for a purchase. Here’s some background information.
- Current charge: Right now, fees vary among cards but some require merchants to fork over as much as one or two percent of the total price of a customer transaction – naturally, such fees can really add up on bigger purchases.
- Signature vs. PIN: Current practice also generally means that merchants have to pay more when a customer chooses to sign the receipt than when the customer chooses to enter her personal identification number (PIN).
- Potential for 70 percent drop: If the rule proposed by the Dodd-Frank bill actually went into effect, merchant fees could drop by more than two-thirds. While consumers don’t actually see these fees, some sources suggest that retailers would be able to lower prices because of the savings that lower fees would mean.
Less Lucrative Debit Cards and Your Bank
But retailers wouldn’t be the only ones affected by lower debit card transaction fees (what some legislators have apparently dubbed “hidden taxes” on consumers). In fact, in an era of disappearing free checking accounts, lower debit card fees could deal a final blow to something many consumers have gotten very accustomed to having.
- Less money from transaction fees: If merchants paid less money each time you swiped your debit card, banks would receive less money – in other words, profit would drop for any banks that issue debit cards to their customers.
- Less incentive to offer free checking accounts: And, because most debit cards are linked to checking accounts, banks would have less motivation to offer these accounts for free. After all, checking accounts cost some money for banks to maintain, and if they’re not making sufficient profit from debit card fees, they may lose their incentive to refrain from charging checking account customers.
Keep a close eye on your bank account statements each month, particularly if you have a free checking account or a debit card linked to a checking account. Many banks are already changing their policies and fee structures associated with their formerly free accounts, and if the new debit card rule passes and takes effect, more banks might follow.
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