$50 limit on debit? Seriously?

Chase is mad about interchange limits, and they dont care who knows it. (photo by Ed!)

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Just in case you were wondering if banks are still upset about upcoming limits on the debit interchange fees they can charge merchants, rest assured they are. The latest scheme to replace interchange fee income/punish America for its insolence comes via JP Morgan Chase, which is floating the idea of placing limits on the size of purchases checking account customers can make using their Chase debit cards.

Chase is mad, and they don't care who knows it. (photo by Ed!)

From American Banker:

JPMorgan Chase is considering limiting the size of purchases allowed on its debit cards in response to the Federal Reserve Board’s proposed cap on interchange fees.

Banks already have added checking account fees, and many analysts expect them to go further to recoup revenue lost to regulation by charging customers for using their debit cards and limiting the number of purchases they can make in a month.

“All institutions are forced to consider how to find revenue to make up for losses here because they still have to maintain really strong fraud prevention programs, they have to maintain really strong …  internal operations (and) they need to maintain enough revenue to support services they provide consumers every day,” said Ken Clayton, senior vice president and general counsel for card policy at the American Bankers Association.

The theoretical limits would bar purchases over an arbitrary limit of $50 or $100. To understand how that would impact a typical consumer, imagine you’re finally get into the front of the checkout line at the grocery store. Maybe you’re buying a little more than usual, so your bill comes to $105, rather than the usual $85, but you’re sure you have the money in your checking account because you just got paid. You swipe your debit card and enter your PIN, only to see the screen come up “declined.” At that point you have two options: have the cashier split your purchase and re-ring some items to avoid the $100 limit, or find another way to pay. Meanwhile, your fellow shoppers are grumbling and looking at their watches, and the line’s getting bigger behind you. Not much fun, right?

Chase’s reasoning for the move is that, because Fed rules authorized by the Dodd-Frank Act mandate banks charge merchants a relatively small flat fee instead of the hefty percentage they’re used to, they’ll just have to force people to make more numerous, smaller purchases to make up the difference.

I have to think policies like this would be pretty disastrous for any banks that tried to implement it. There’s a lot of customer inertia in the banking industry, but I’m pretty sure getting held up in the checkout line a couple of times for exceeding some arbitrary purchase limit would do a pretty good job overcoming it.

My instinct is that this is just a ploy to put further pressure on Fed to delay or raise the fee limits they’re considering, because it’s hard to imagine any bank voluntarily making their debit cards essentially useless.

What do you think? Would you switch banks if your bank tried to implement a debit card purchase limit?