Thursday, October 27, 2011

Debit Card Shell Games

Previously, I posted about the ongoing issues with some banks now charging for debit card use allegedly due to the cap on swipe fees.  I've been continuing to follow the news since we are a debit card family. 

Back during the debate on swipe fees big retailers, like Wal-Mart and 7-11, promised that prices would be lowered if swipe fees were capped.  That promise has not been fulfilled because the new swipe fee caps don't apply to credit cards nor do they apply to debit cards from smaller banks. Credit cards, especially reward credit cards, have very high fees for retailers and those fees are not limited by the swipe fee cap.  So how would a retailer pass on the savings?  Well they could provide a discount for using cash, since the Dodd-Frank act passed it has been legal for retailers to charge a different price for those willing to pay cash, but so far I've not seen any cash pricing except on gas.  It is understandable that retailers wouldn't want the hassle and the cost (yes there is a cost) of having two prices.

So now come the banks, the big banks, who are starting to charge for debit card use and, according to this article, pushing people back to credit cards.  Eeeek!  Why would banks push consumers to credit?  Well, as explained above, there is no cap on the swipe fees, rather retailers are charged a percentage of the purchase price.  If you are using a great rewards card, the retailer is charged more.  Plus the banks earn interest and fees on credit cards.  While there are lots of responsible people who pay their credit card bills in full each month, 46%. according to a Consumer Reports article (sadly could not find link) carry a balance. 

What are you going to do if your bank starts charging for debit card use?


Anonymous said...

We use debit at the grocery store and for small purchases like Starbucks or fast food. Cash sometimes but not too often and credit cards the rest of the time. We never write checks anymore at retailers. Costco (2% back with their Amex Card) and gas account for a large chunk of our credit card purchases. We pay the card off every month. If my bank starts charging for debit, we won't use it and just do more with our Visa rewards and Costco Amex.

Anonymous said...

Wells is cancelling their test and BofA is revisiting it.