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Court ruling to boost bank fees?

By Claes Bell ·
Friday, August 2, 2013
Posted: 3 pm ET

A federal judge this week struck down Federal Reserve limits on the swipe fees banks charge merchants to process debit card transactions.

While that may sound like a win for the banks, it's not. U.S. District Judge Richard Leon struck down the limits as being too high, and thus too favorable to banks.

In his opinion, Leon wrote that the Federal Reserve's limit of 21 cents per transaction, plus a few pennies for additional costs, "runs completely afoul of the text, design and purpose of the Durbin Amendment." The Durbin Amendment, enacted into law as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, requires the Fed to limit swipe fees to what it costs banks to process a debit transaction.

The ruling leaves in place the 21 cent cap for now, but the Federal Reserve will have to revisit it and likely lower the cap to something closer to 7 cents to 12 cents per transaction.

If you've made it this far, you're probably asking yourself some version of "who cares?" After all, this seems like a battle between moneyed interests -- banks and merchants -- that has little to do with consumers. But there is actually something at stake here: how much you pay to have a checking account.

One of the primary ways banks make money off checking accounts is swipe fees. If those fees get drastically cut, banks will look for revenue elsewhere, and the pattern so far has been that they'll find it by raising checking account fees.

In 2009, before the passage of Dodd-Frank, along with key Federal Reserve restrictions on overdrafts, 76 percent of checking accounts at large banks were free. By last year, that number dropped to 39 percent, with many banks announcing minimum balances and monthly maintenance fees that average $5.48 for customers who don't meet them. Debit card rewards programs, once common, have also disappeared at most banks.

Retailers maintain that the Durbin Amendment is ultimately good for consumers, allowing retailers to pass savings from lower processing fees on to consumers, but whether that's actually turned out to be the case is still controversial.

It's possible that lower swipe fee caps will make those savings easier to quantify. But what seems certain is that if the Federal Reserve ends up cutting swipe fees further, account holders will be asked to pick up part of the tab.

What do you think? Are you willing to pay more for a checking account in order to see lower prices at retailers?

Follow me on Twitter: @ClaesBell.

Senior banking reporter Claes Bell is a co-author of "Future Millionaires' Guidebook," an e-book written by Bankrate editors and reporters. It's available at all the major e-book retailers

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September 27, 2013 at 11:26 pm

The name of the game is "The poor man pays for the greed of the wealthy".

Jon Weiss
September 16, 2013 at 1:58 am

If the banks raise fees on card usage, I will simply use more cash transactions, if the merchants increase prices, then I will simply buy fewer products, eventually they will cut somewhere to draw in more business, or they will go out of business.

September 10, 2013 at 5:21 am

It makes more sense then ever that TD Bank's "simple checking" account went from no fees... to $2.99 per month... and now $4.99 per month in a short period of time. I figured they were just being greedy (which they may still be) but could also be hedging their bets.

August 20, 2013 at 2:44 pm

It is interesting that as the government is always pushing to get more people "banked" both in the USA and the world that they would also encourage actions that unbank the so called poor. With no accounts it is harder for government to track citizens for tax fraud as well as track habits and easier to commit welfare fraud. Of course the current push is to prepaid cards that have zero givernment protections and out ragous fees.

Michael Farmer
August 13, 2013 at 10:48 pm

All of this is just driving more people towards a cash & barter economy. Which is ultimately better for the consumer, but a detriment for the government.

ciara joyce
August 02, 2013 at 6:17 pm

Retailers aren't going to lower prices. Neither are banks. The banks will take the same amount of money from us, no matter what they call the fee. Of course, people who have lots of money don't pay any bank fees. Those are just for those of us who are poor. (I'm poor because my doctor ordered me to retire on full, permanent disability when I was 45. That put a real crimp in my retirement saving, and I've used it all now. I needed to buy food. There are no programs available to help me because I "make way too much money." I get less than $22,000 a year and live in the most expensive county in the US. It was cheap when I moved here years ago. I'm trying to get enough money together to sell my house and move.)