Banks sock it to customers as regulations take effect | News
By Rachel Bennett
(RNN) - Thanks to new bank regulations that take effect Oct. 1, many checking account customers can expect to see their fees rise simply for having an account.
The new regulations limit how much money banks can charge businesses for accepting debit card purchases. Each swipe of a debit card by a cardholder costs businesses a percentage of the sale.
Under the new regulations, banks are limited to a $.21 charge on debit card swipes. It's a more than 50 percent decrease from the previous average of $.44 per use.
The new regulations are expected to cost banks a lot of money. Keivan Deravi, professor of economics at Auburn University Montgomery, said banks will look to their customers to make up the difference.
"It really cuts into a lot of revenues that the big banks were accustomed to receiving," Deravi said.
The regulations are a watered-down version of the Durbin Amendment, which was added on to the Dodd-Frank Wall Street Reform and Consumer Protection Act. It was originally slated to take effect in July, but the Federal Reserve pushed it back to October after issuing its final ruling.
Deravi said bank account holders can look forward to additional fees and penalties.
"This has been a major source of revenue, and the loss of it has to be replaced," Deravi said.
Bank of America spokeswoman Betty Riess said the bank will lose an estimated $2 billion annually.
Wells Fargo, another large bank, is also predicting a major loss of revenue.
"We are estimating it's going to be an impact of $250 million a quarter," Lisa Westermann with Wells Fargo said.
To combat this, she said the bank is doing away with their debit rewards, but said account holders can keep them and combine them with credit card rewards.
At the moment, fees seem to be the go-to solution for many banks looking to make up for the loss.
"We are test-piloting a monthly debit card fee, which would be $3 a month for people who use their debit cards to make payments and purchases," Westermann said.
Bank of America will charge debit-card users $5 per month beginning in October.
Deravi said consumers can look for a temporary solution in smaller banks and credit unions because they are exempt from the new regulations, but he expects those institutions will follow the larger banks sooner rather than later.
And he said it's possible banks may stop offering debit cards entirely.
"It is going to limit, to some extent, whether the banks will offer a debit card or not," Deravi said.
What's more, Deravi said that the regulations will likely have little effect other than forcing banks into innovating new payment methods that bypass them, such as using your smartphone for purchases.
Westermann said that Wells Fargo has no plans to get rid of debit cards, but she did say they had just finished testing a pay-by-phone program in the San Francisco area.
"You always have your phone in your hand," she said. "Instead of trying to dig in your purse, just swipe your phone."
New payment methods are a far cry from the intended purpose of the Durbin Amendment, which was to "ensure that the fees that small businesses and other entities are charged for accepting debit cards are reasonable and proportional to the costs incurred."
"I don't think any of these regulations imposed on any of these financial instruments will be effective," Deravi said. "It just moves the burden from one group to another group."
Instead, he believes it's just a move by the government to prove that they still have control.
"This is a very small and insignificant of a reaction to the banking deregulations of the '80s and '90s," he said, adding that it would do nothing to help the economy.
"Our economic problem is much more serious than this, much more serious."
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