Can't charge for the soda .... charge more for the burger!

Banks to Make Customers Pay Fee for Using Debit Cards

Excerpts:

Bank of America, the nation’s biggest bank, said on Thursday that it planned to start charging customers a $5 monthly fee when they used their debit cards for purchases. It was just one of several new charges expected to hit consumers as new regulations crimp banks’ profits.

Wells Fargo and Chase are testing $3 monthly debit card fees. Regions Financial, based in Birmingham, Ala., plans to start charging a $4 fee next month, while SunTrust, another regional powerhouse, is charging a $5 fee.

The round of new charges stems from a rule, which takes effect on Saturday, that limits the fees that banks can levy on merchants every time a consumer uses a debit card to make a purchase. The rule, known as the Durbin amendment, after its sponsor Senator Richard J. Durbin, is a crucial part of the Dodd-Frank financial overhaul law.

Until now, the fees have been 44 cents a transaction, on average. The Federal Reserve in June agreed to cut the fees to a maximum of about 24 cents. While the fee amounts to pennies per swipe, it rapidly adds up across millions of transactions. The new limit is expected to cost the banks about $6.6 billion in revenue a year, beginning in 2012, according to Javelin Strategy and Research. That comes on top of another loss, of $5.6 billion, from new rules restricting overdraft fees, which went into effect in July 2010.

And even though retailer groups had argued that lower fees were important to keep prices in check, consumers were not likely to see substantial savings. In fact, they are simply going to end up paying from a different pot of money.

Or as Jamie Dimon, chief executive of JPMorgan Chase, put it after passage last year of the Dodd-Frank Act, “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger.”

Comment: Durbin amendment was not consumer friendly

Debit Card fees coming? Will change behavior?

Debit card fees might change behavior

Excerpt:

Chase, for example, is testing a $3 monthly fee for debit cards on new accounts in northern Wisconsin. In Atlanta, it's testing a $15 monthly fee on basic checking accounts.

Among the AP-GfK poll respondents who say they would leave their debit cards in their wallets in the face of such fees, more say they'd pay with cash, 53 percent, or check, 42 percent, rather than another form of plastic.

"Cash or checks -- they're not very expensive," said Aaron Alto, a 44-year-old resident of Grand Rapids, Minn. Alto says he'd be annoyed enough to look for an alternative to his debit card if the fees approached $10.

Debit card fees would cause 22 percent to switch to credit cards, and 12 percent say they would switch to a prepaid spending card.

Comment: Not a fan of the Debit card (except for use at an ATM)

Write on a chalk board 1,000 times: Price controls on credit lead to . . . less credit.

Debit Card Debacle

Excerpt:

Under current rules, every time a customer uses a debit card in a store, the issuing bank charges the merchant a small transaction fee, which represents a percentage of the sale. Under the new Fed rule, which will take effect in April unless Congress acts to stop it, that fee will be capped at 12 cents per transaction, reducing the charges by some $12 billion to $14 billion and in effect transferring the cost of debit cards from the merchants who pay the fees to the consumers who use them.

Merchants argue that if they don't have to pay as much per transaction, they will pass along the savings in lower prices. While that is doubtful, the loss of that revenue will force debit card issuers to raise fees elsewhere to compensate.

Congress's 2009 effort to regulate credit cards shows what will happen. Do you like free checking? Enjoy it while you can, because unless you're a high roller you will soon be paying for check-writing privileges. The price controls have also caused banks to deny credit to marginal borrowers—i.e., those with low incomes. Many have been forced out of the formal banking system and into the arms of payday lenders (if they're lucky) and loan sharks (if they're not). Mr. Durbin should have called his amendment the Payday Lender Empowerment Act.

Amended to Dodd-Frank at the last moment, the Durbin gambit avoided the scrutiny of hearings and passed the Senate 64-33. Seventeen Republicans went along for this ride, which proves that ignorance is bipartisan.

Comment: The law of unintended consequences ... which congress regularly ignores

"people who pay overdraft fees help subsidize the free accounts of those who do not"

Overspending on Debit Cards Is a Boon for Banks

Excerpt:

When Peter Means returned to graduate school after a career as a civil servant, he turned to a debit card to help him spend his money more carefully.

So he was stunned when his bank charged him seven $34 fees to cover seven purchases when there was not enough cash in his account, notifying him only afterward. He paid $4.14 for a coffee at Starbucks — and a $34 fee. He got the $6.50 student discount at the movie theater — but no discount on the $34 fee. He paid $6.76 at Lowe’s for screws — and yet another $34 fee. All told, he owed $238 in extra charges for just a day’s worth of activity.

Comment: Full article with pros and cons of fees is very good! Not as black and white (eg Banks bad!) as one might think! I would think a good solution would be for customers to have the option (either opt in or opt out) to NOT have automatic overdraft (ie ... debit would be denied if insufficient funds).

MORE:

Most of the overdraft fees are drawn from a small pool of consumers. Ninety-three percent of all overdraft charges come from 14 percent of bank customers who exceeded their balances five times or more in a year, the F.D.I.C. found in its survey. Recurrent overdrafts are also more common among lower-income consumers ...

Bank fees for PIN card transactions

DEBIT-CARD PURCHASERS PENALIZED FOR PIN USE

Excerpt:

"Debit or credit" is a misleading question. While all the plastic in your wallet looks the same, most of us carry around three different ways to pay: a regular credit card, a bank/ATM/debit/cash card that can be used with a PIN code to buy things at retail stores (PIN-debit transactions) and a bank/ATM/debit/cash card that can be used with a signed slip to buy things (signature debit). It's the last two we're concerned with here.

Comments: a good read. I personally think it is borderline unethical to charge customers for PIN-based transactions. Caveat Emptor! For us ... we do not do debit card transactions. Why? We have rewards programs with our credit cards!