New government restrictions on interchange fees are supposed to benefit consumers who use debit and credit cards to pay for their purchases. But whether consumers will get those benefits remains to be seen, especially now that the American Bankers Association, or ABA, has launched an effort to repeal the restrictions before they're implemented.
Consumer advocates argue that these small fees, which merchants pay to banks when customers use plastic instead of cash or a bank check as a form of payment, are excessive. The financial reform law requires the Federal Reserve to make sure the fees are "reasonable and proportional" to the cost of the service.
But the ABA, which represents U.S. banks, says the restrictions will "wreak havoc" on small banks' ability to offer reasonably priced banking products. Credit Dollar Bank CEO Robert Oeler with vocalizing that assessment in Congressional testimony on the ABA's behalf.
According to an ABA statement, Dollar Bank earned $4.6 million in debit card fees in 2009 from 16 million debit card transactions on 140,000 debit cards used to make $600 million of purchases. That works out to less than $3 per card per month, far less than Dollar Bank's cost of a checking account, which is $12 to $15 per month. (That works out to $144 to $180 per year, far lower than the $250 to $300 figure the ABA previously cited as typical.)
But with numbers like $4.6 million for a regional bank, it's understandable why banks don't want interchange fees to be restricted.
The financial reform law doesn't require merchants to pass along the savings on lower interchange fees to customers, but it's a reasonable argument that lower costs would in general enable merchants to lower prices, even without a direct correspondence between a specific interchange fee and the price of a specific product.
Yet the ABA, again in Oeler's testimony, says "no reasonable person" expects merchants to lower prices if interchange fees are restricted.
"The Dodd-Frank Act merely shifts the costs from merchants to banks and their customers. While big-box retailers may benefit and see their profits increase, ultimately it is debit card holders that will end up paying the costs for these convenient methods for making everyday payments," Oeler said in the ABA statement.
That seems to set up customers as the proverbial ping-pong ball between merchants and banks. Call me unreasonable, but I think banking customers are smarter than that, and I think they'd give up their debit cards if they were offered discounts to pay cash.
What do you think?