The Federal Reserve is examining a new rule that would cap point of sale debit card fees to 12 cents per swipe. While the reduced fees sound great in theory, there are plenty of unintended consequences that need to be uncovered.
1. Limited transaction amounts – Because of the current percentage-based fee structure, a 12 cent cap on debit card fees could mean that banks allow debit card purchases only on purchases of $50 or less, the maximum customer liability for fraud. Currently, percentage-based fees mean it is just as profitable to protect customers from $1000 of fraud as it is $2 of fraud. Not so much after the switch.
2. New fees on checking accounts – In order to generate the same amount of revenue, banks are pondering new monthly service fees just for having a checking account open. One of the worst possible outcomes here is that some bank customers will close their checking accounts altogether, joining the millions of “unbanked.”
3. Transfer of wealth from poor to rich – The overwhelming majority of the unbanked population are those who have the lowest income. If banks make the switch to flat-rate, monthly fee checking accounts it will be the poor who carry proportionally most of the burden of new fee structures. Today, those who spend the most are the ones who pay the most in passed-on fees. In the future, fee-based checking would mean those with the least amount of money spend the most on fees.
4. Credit comes back – The 12 cent cap would not apply to credit cards, giving banks an incentive to push credit cards over debit cards.
5. Bank revenue plummets – Wall Street has priced in a drop in fee revenue of as much as 60%. Of those hardest hit will be Mastercard and Visa, which derive almost all of their revenue from credit and debit card processing fees.
5.5 New Fees on ATMs – In response to the new law, JP Morgan Chase will be testing out fees of $4 or $5 on various ATMs around the country. The company sees ATMs as one of the few unrestricted revenue sources that allow Chase to derive revenue to subsidize customer account services with revenue generated from non-customer ATM transactions.