Banks say consumers will pay the price for pending limits on checking account debit card swipe fees
August 03, 2010
The battle over interchange fees -- the payments retailers make to banks every time you swipe your checking account debit card to buy stuff -- isn't over yet, at least not as far as banks are concerned.
The American Bankers Association (ABA) is still fighting the pending fee limit, which was included as part of the massive financial regulatory reform package approved by Congress in July, and wants lawmakers to repeal the measure.
Testifying on behalf of the ABA on July 29, before the House Committee on Small Business, Robert Oeler said the fee limit will "wreak havoc" on banks' ability to offer reasonably-priced services. Oeler is president and CEO of Dollar Bank in western Pennsylvania and northeastern Ohio. Revenue from debit card interchange fees helps offset the costs for providing services, he said.
Another reason to end free checking accounts
"Without this income, it becomes very difficult for many banks to continue to offer low and no-cost checking for our customers."
What's more, Oeler says the interchange fee limits will make it harder for banks to make loans. He estimated a 50 percent cut in interchange fee revenue will translate into 200 fewer small-business loans at his bank. For the industry as a whole, he estimated lending could drop by $74 billion.
Retailers say a limit on fees will mean lower prices at the cash register, but banks say it will just fatten big-box retailers' profit margins.
The financial regulatory reform bill did not stipulate a precise limit. Federal regulators will make that decision in coming months.
Many banks have already eliminated free checking as they grappled with the effects of new rules restricting overdraft fees on checking account debit card transactions. With the limit on interchange fees, expect banks to pull back even more on free services.
