Visa, MasterCard sink on Debit Card Fee Cap Plan

[trumpet-205]

http://money.cnn.com/2010/12/16/news/companies/debit_card_fee_rule/index.htm

In short version, new law, if passed, forces Visa and MC to charge no more than 12 cents as interchange fee for each debit card (also known as check card) transaction.

Personally, I'm really skeptical about this. I really doubt this will benefit consumers. Why?

* Banks will recover by imposing a maintenance fee on debit card.

* Possibly elimination of debit card rewards, less incentive for consumer to buy.

* Forcing consumers to use alternative payment options (Checks, Credit Cards, Cash, etc).

* Some consumers will find it not convenient to use alternative payment option, and decrease their spending.

* If more people are to use credit cards, it may very likely translate into higher delinquency percentage (meaning more people in debt).

* Higher delinquency percentage could put creditors in risk, a second subprime crisis?

* Also higher delinquency percentage means higher credit standard. More difficult to get a credit card.

* If more people are to use credit cards, merchants are still faced with high interchange fee.

* Possible elimination on more free checking accounts (ally, Charles Schwab, Chase, and etc), since these accounts can be free thanks to profits from interchange fees.

* No free checking account = monthly account maintenance fee.

So what do you guys think? I know this isn't about credit card but it is related to it in some ways. Do you support this new law?

I don't support this law. It appears to me that Fed forgot what effect did Card Act has on consumers.

[IOBA]

I dunno.

Way back when, when debit cards were making their debut, there were fees charged to the customer for using the cards.  I have an aversion to paying bank fees, so I never got into using the cards.   

Later, they became "free" to use.  Still didn't get into using the cards.  

So for me, there is no immediate effect.

[trumpet-205]

I just read more about this. Most articles I read suggest retailers will NOT pass savings to consumers. If they DO pass savings to consumers, it will be in the form of price discrimination. IE use debit cards for savings or CCs for higher price. At extreme case, retailers will refuse to accept CCs.

AMEX in particular is worried because this further distance themselves away from others (AMEX charges the highest interchange fee). With even more reason merchants to stop accepting AMEX, less incentive for consumers to apply AMEX.

In short, this move can potentially do more harm than good. Strange thing is, this move does not affect Prepaid cards.