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Proposed swipe fee limits could lead to restrictions on the size of purchases

March 29, 2011

| Money Rates Columnist

Most customers won't hear about it, but their banks are going after credit card companies such as Visa and MasterCard for help in recovering from what is expected to be a 90 percent cut in the swipe fees.

Banks handing out higher fees but looking for lower ones

Although banks have already gone after their customers--charging a variety of new fees on such things as your monthly checking account, they are also asking the credit card companies to help them out.

According to the newsletter ATM and Debit News, banks are asking the credit card companies to lower the fees they charge them. Visa, MasterCard and other credit card networks levy these fees to banks that issue cards with their logos, and the revenue covers transaction processing, licensing and network maintenance.

The newsletter reported that Visa and MasterCard executives have already rejected the idea of lowering those network fees--they say the fees are justified.

But according to the Federal Reserve, these so-called network payments amounted to $2.3 billion in 2009, so it's understandable why banks would like to renegotiate them. But most of those contracts are long-term, so while banks wait for their current agreements to expire, they are charging their customers new fees tied to their checking account and debit card use. Some analysts say it's easier to get money out of customers than to get it out of credit card companies.

Meanwhile, JPMorgan Chase & Co. is considering restricting the size of purchases allowed on its debit cards in reaction to the Fed's proposed limits on swipe fees.

Fee legislation

According to the Wall Street Journal, some experts think that heavy-handed fees and restricted debit card use is only likely to draw more attention from the federal government. Banks employed those tactics prior to the passage of a 2009 Credit Card Accountability, Responsibility and Disclosure Act and it resulted in a much tougher law. The final bill expanded protections for those who apply for credit and credit cards, and enacted restrictions on credit card rates, particularly increases in credit card rates when a customer is late with a payment.

During hearings in Congress in late February, lawmakers were already expressing concern that the swipe fee restriction, which is expected to cost debit card issuers about $14 billion a year, will backfire and result in even higher fees for consumers. The Fed's proposed swipe fee rules, which would cap each transaction at 12 cents compared to the current average of 44 cents, is expected to go into effect in July.

Citigroup Inc. and Bank of America are also considering transaction-size limits of $50 to $100 for debit cards.

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