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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Debit card fee cap could raise banking costs

Eileen Aj Connelly Associated Press

NEW YORK – A proposed cap on the fees that banks charge for debit card transactions would substantially reduce the cost for businesses. But it’s started a death watch for debit card rewards and renewed predictions that free checking is done for.

At issue is who will ultimately benefit from the savings? The Federal Reserve’s proposal to cap these fees, officially known as interchange fees, at 12 cents per transaction would enable retailers to pass on annual savings of $10 billion to $13 billion to consumers. But banks and card networks maintain that retailers will pocket the savings. This would leave consumers to bear the brunt of the new law through higher costs for banking and reduced rewards programs.

“The banks have a very sweet deal here,” said Sen. Dick Durbin, who sponsored the provision in the financial regulatory overhaul that ordered the Fed to set rules on these fees. The Illinois Democrat acknowledged that the legislation does not require merchants to share any cost reductions with customers, but said they’re likely to benefit at the checkout.

“The retailer who is in competition with the restaurant around the corner is going to use this as an opportunity to lower prices,” Durbin said.

Shawn Miles, group head of public policy for MasterCard Inc., said banks will have to compensate for the loss of revenue by adjusting the fees they charge consumers. “That’s the only way they could deal with something that was this dramatic,” he said. Wall Street and the banking industry were expecting the proposed cut would call for fee cuts of no more than 60 percent. The proposal is close to a 73 percent cut.