Thursday, February 24, 2011

Say Goodby to Free Checking.

The battle between merchants and bankers over proposed caps on debit-card swipe fees intensified this week as the dueling industries brought their arguments to a financial services subcommittee on Capitol Hill. At present $ 12 billion is paid annually by merchants to the various banks that issue debit cards.  New rules promulgated by Congress want to reduce interchange fees to no more than .12 cents per transaction.  How does this impact you? Simple;  if the banks cannot make money they will recoup their profits from YOU! Surprised? Don't be. Anytime the illustrious powers that be in Congress step in to help the little guy, they end up screwing the little guy because these guys rarely understand simple economics.

The sad thing is, none of this will save you money. Not one thin dime. Why? Well, the money that was being charged to the merchants is no longer going to be charged to them by the banks. Great you say. Its not. Those merchants will not be lowering their own prices to reflect their reduced costs. So every merchant that takes your debit card will receive a windfall in profits. The banks, God bless em, will do several things.  One, they will close any small balance checking accounts. These are unprofitable to them now, and they will close them by the millions, adding to the 60 million people who don't have a bank account now. If you are lucky enough to make the cut, they will require that you keep $ 1000 to $ 5000 in total balances with them, AND they will eliminate the ability to use monthly debit card usage to count towards your free checking. In other words, say bye bye to free checking.

"If the interchange fee is capped, we are forced to go back and look at our pricing on all of our checking products," said Paul Van Ostenbridge, chief executive officer of Atlantic Stewardship, based in Midland Park. He said the bank is able to pay as much as 2.6 percent interest on its "Power Rate" checking account, for example, mainly because account holders must make a minimum of 10 debit-card transactions per month to qualify. The retailer making the sale pays the bank with each swipe. "Debit card usage is what drives the revenue to the bank," Van Ostenbridge said.

Thanks Mr. Dodd and  Mr. Frank. 

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1 comment:

Anonymous said...

Good stuff. Thanks!