Well maybe that need to decline overdraft protection wasn’t really necessary after all.
Imagine being out for dinner with your family and having your debit card declined. Not because of insufficient funds. But because you decided to have an appetizer that put your total bill over $50.
That could be a situation many customers will face if JPMorgan Chase (JPM) and Bank of America (BAC) are successful at placing a cap on the dollar amount of debit card transactions.
The fees are being considered in response to recent proposed legislation by the Federal Reserve that would cap interchange fees.
Interchange fees are fees charged to retailers every time you use your debit card. Currently banks receive an average of 44 cents per transaction. Those fees add up to about $16 billion per year for the banks.
The new legislation would impose a cap of 12 cents. For a bank like Chase, that could mean a loss of $1 billion a year.
And Chase may not be alone. Other major issuers are also projecting huge losses from the interchange fee cap. And indications are, they’re not likely to let that revenue go away without a fight.
Joe Price, president of consumer banking for Bank of America, said in an e-mailed statement that the lower fee wouldn’t fairly compensate the bank for the infrastructure and services it provides to retailers.
And consumers would end up feeling the pain when Bank of America is forced to recoup costs “by increasing the cost of their everyday debit card transactions, limiting their payment choices, and impacting industry innovation,” according to the email.
Retailers have been lobbying for these changes for years, but are quickly finding out that they should be careful what they wish for.
If a cap like this does make its way into accounts across the board, consumers would be forced to write checks, withdraw cash from ATMs, or put their spending on credit cards. All of which could fundamentally change the amount that they spend.
The revenue banks get from interchange fees helps to offset money lost from fraudulent transactions. So with the Fed’s proposed cap in place, banks argue they won’t have the money to protect themselves against fraud. And, of course, the bigger the purchase the bigger the risk, so banks are considering limiting consumers’ ability to pay by debit card.
“If banks cannot recapture their fraud-prevention costs, it is likely that a lower percentage of transactions at the point of sale would be approved,” Price said. “If the final rules that are issued in April look like the draft, there’s no question that it will impact how we and other issuers price deposit and payment services and what features and benefits are included.”
But a Bank of America spokesman declined to comment on whether the bank would cap debit card purchases at $50 or $100.
Representatives from Wells Fargo (WFC) and HSBC (HBC) declined to comment on their plans, while a spokeswoman from Citi (C) said the bank isn’t making any changes at this time.
