UPDATE: 20 July 2011 - Check out the images below and note that we redacted personal information. This is the end result for consumers by ridding debit card transaction fees. Since banks and credit unions lose money through the collection of less fees, consumers lose through a reduction in services. Read the letters below and you will see that USAA has decided to stop their debit rewards program. The second image lists the programs and services comparing USAA to other banks. Want a larger copy of the image for your own examination? Send us an email at badmoneyblog@gmail.com or find us on Twitter @BadMoneyBlog
This has been a hot topic in the news lately. The chief reason is that interested parties on both sides of this issue are spending buckets of money on advertising and lobbying in an attempt to sway politicians and the American consumer towards their side. The center of the argument revolves around the debit card fees that businesses pay every time you swipe your debit card. According to my research, credit cards will not be affected.
For the average citizen, you likely did not even realize that the business pays anything for your use of a debit/ credit card. At the same time, you have likely walked into a smaller “mom and pop” run business and noticed a sign that said something like “no card transactions under $5.” This transaction minimum is in place because, by the time the business owner pays the associated fees on a $5 transaction, they could end up with a net of around $4 or less. The businesses are charged 1-2% for debit card purchases and 2-3% for credit card purchases, not including set-up fees and other fees simply to accept a debit/ credit card.
To see how these fees work and industry average prices, click here.
Why do you think that financial institutions encourage you to use credit cards instead of debit card in this hotly disputed, billion dollar industry? The financial institutions currently collect the credit card fees. This is the other side of the debate.
On one side, we have the big-bad-vilified-banks who collect these fees every time a card slides. The other side is the feel-bad-for-us-businesses who claim to be the victims. However, the businesses have been paying these fees for years. So why, only now, are the businesses rallying to complain? Likely because public opinion is suspiciously eyeballing the bloated banks who are blamed for all of our financial woes.The consumers' position. We here at Bad Money can remember when debit cards first started to carry major credit card logos, certain banks charged higher fees to consumers for running a transaction as "debit" instead of "credit." We seem to recall paying $0.40 per transaction if we used our card as debit instead of credit. As a learned behavior, as our pocket got lighter, it was time to run our card as credit. Honestly, for most of us consumers, we could care less since these fees are transparent to us. However, the only place where these fees are evident, are at the handful of gas stations who advertise a credit vs. cash price.
If the other businesses, especially retailers, were truly interested in protecting consumers, they would offer a 1-5% discount for paying cash. Until this happens, we will sit firmly in the middle, filled with apathy, watching the debit card transaction fees pile up.Click here to view a recent Fox News article on this topic and the latest in name calling between banks, retailers, and politicians.Click here to see the final result - The Federal Reserve Orders Banks to Lower Retailers' Debit Card Fees as reported by Fox News.