Ever wonder why your little credit union will pay you a nice, fat 3.5 percent return (or more) for holding your spare cash in a checking account, just for using a debit card 10 or 12 times a month?
Wonder no more: They get up to 2 percent of every swipe when you buy something using that card. Those pennies pile up to $12 billion a year for the largest U.S. banks.
Now a move is on to get Congress to end the party for the banks. Major retailers, such as The Home Depot and 7-11, are howling for change. The Federal Reserve wants the fee to be a flat 12 cents per swipe, not a percentage of the sale.
|Fight is on for planned debit-card fee caps.
A decision, part of the Dodd-Frank banking reform law, could be made by April 21 and take effect in July.
“Such relief is crucial as retailers continue to struggle to recover from the worst recession of our lifetime,” said Jan Teague, chief executive officer of the Washington Retail Association, in a comment letter to the Federal Reserve in support of the cap.
In instituted, the cap would kill a major source of income for banks and probably end the special deals for savers but help retailers, who likely hide the cost by passing it along in product pricing.
In a 72-page protest, banking industry trade groups calls the proposal “legally defective” and urged against the 12-cent cap.
“With virtually unprecedented unanimity, every major bank and credit union trade association is writing to express opposition to the rule proposed by the Board of Governors of the Federal Reserve System,” said the letter, produced by financial industry groups, including the Financial Services Roundtable and The Clearing House Association.
Banks and credit card companies argue that instituting a cap would do little good and may even harm consumers in the end.
“Regardless of the size, from the largest bank to the smallest corner institution, debit-card customers will pay more, have less convenience or watch their cards disappear altogether,” Trish Wexler, a spokeswoman for the card issuer group Electronic Payments Coalition, told Bloomberg News.
Meanwhile, at least one report gathered by the Fed shows using a debit card really costs 11.9 cents per swipe. Processing fees are closer to 4 cents, according to the National Retail Federal (NRF).
“It should be less than that because our studies show that even four cents is a little high,” Mallory Duncan, senior vice president for NRF, told The Wall Street Journal. “Debit cards are like checks and checks cost zero.”
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