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Mind the Debit Card Cap

One of the nation's largest banks, JPMorgan Chase, is contemplating capping debit card transactions at either $50 or $100. This leads to a logical two-word question: "Um, why?"

The answer is something called interchange fees. Right now, banks charge retailers an average of 44 cents every time customers swipe their debit card to make a purchase. The bank shares this fee with its partners. As you can imagine, those interchange fees add up to some serious scratch--$16 billion per year in 2009, according to the Federal Reserve.

However, as part of the Dodd-Frank legislation going into effect in July, interchange fees will be cut to 12 cents per transaction. The reduction in interchange fees will likely cost banks such as JPMorgan Chase and Bank of America more than $1 billion per year. 

This legislation has left banks scrambling to find a way to make up for that revenue. One way is to discourage debit card purchases by introducing a cap of $50 or $100.

If banks cap debit card transactions, customers will be forced to write checks, withdraw cash from ATMs, or put spending on credit cards. All three methods will lead to increased fee-based revenue for banks capping debit card transactions. 

Here's how.

You need a checking account in order to write checks. The checks themselves are not free to order and banks are poised to add fees to your once-free checking accounts. JPMorgan Chase is currently testing monthly fees to checking accounts--up to $15 per month in some states. They're also considering charging customers $3 per month just for owning a debit card.

As long as there have been ATMs, there have been ATM fees. Those fees continue to rise. And since you'll need to pay more frequently with cash, expect to hit the ATM more often.

Many consumers will rely more heavily on credit cards if their debit card transactions are capped. Consumers with sub-par credit that are fortunate enough to be approved for credit cards often have higher rates and fees. If they cannot afford to pay off their balance every month, they will experience huge fees that will compound quickly and generate sizeable revenue for banks.

And that's the worst part about this proposed cap for debit card transactions. One of the fundamental values of debit cards is they allow consumers to spend money they already have and, in turn, manage their finances responsibly. By inserting obstacles in front of debit card purchases, banks would drive consumers back to credit cards and the reckless spending that routinely puts families in financial peril. 

Which leads to one final question: When can we start COMMON Bank?

 

UPDATE: Sign our petition to stop JPMorgan Chase from capping debit card purchases.

 

By Gino Bona

 

Reader Comments (15)

You guys should check out Dwolla - it's an Iowa based tech company that is changing the payment landscape with Dwolla Spots.

https://www.dwolla.com/default.aspx

Enjoy!

::

March 22, 2011 | Unregistered CommenterBryan McCarty

Obviously they are doing it because your money is theirs now! At this rate people will close their bank accounts and we will go back to dealing with cash only. If banks decide to do this I know I'm pulling the plug, no more debit cards for me, and maybe no more bank account or credit card either. The more bank institutions squeeze money out of their customers the more they will be loosing account holders and money.

March 22, 2011 | Unregistered CommenterJack R.

Woof.

I actually withdrew all my funds from Chase, put them into WAMU, and then watched six months later as WAMU was purchased overnight by Chase. Chase is the island from Lost. Not in a good way.

I'm waiting on pins and needles for BankSimple to launch, started by founders of Twitter, it promises to be a no-hassle, no hidden fee, digital way to bank. Here's hoping.

March 22, 2011 | Unregistered CommenterBud Caddell

So aptly named "Chase". In this casino- economic-mindset the house always has the advantage.

Blessings?

March 22, 2011 | Unregistered CommenterIN-B-TWEEN

Credit Unions.

March 22, 2011 | Unregistered Commenter3DRobin

I'm so befuddled.

http://www.businessinsider.com/seiu-union-plan-to-destroy-jpmorgan

Just a heads up that another big solar flare is forming as I'm posting this comment!


Blessings

March 22, 2011 | Unregistered CommenterIN-B-TWEEN

I probably don't know enough to talk intelligently about this but=
Would it be a bank or a credit union?
Is E3Bank a good model? http://www.e3bank.com/
Can a bank be an L3C? (Since it's in the startup space & deposits<lending?)
I'm there.
Rob Bryan

March 22, 2011 | Unregistered CommenterRob Bryan

They are just moving furniture around on the Titanic.


Blessings

March 23, 2011 | Unregistered CommenterIN-B-TWEEN

As consumers, the greatest voice we have is in our wallet. If JPMorgan institutes a policy you don't like, take your business elsewhere. If all banks adopt this policy, use cash. Nowhere is it written that we must all remain beholden to this bank, or any other business for that matter.

The free market would respond positively to this action by introducing products and services that stand juxtaposed to the recently abandoned ones. We already see this happening with new businesses like Square. Notice also the response from fattened industry incumbent Verifone: a predictably transparent FUD campaign.

If anyone is serious about holding JPMorgan accountable for their past grievances against humanity, which are far too vast to innumerate here, why don't you take $35 out of your bank account & use it to buy a single ounce of physical silver? JPMorgan has fraudulently sold enough paper guarantees for the delivery of physical silver, that their combined value exceeds JPmorgan's market cap by $3.3B! They're naked short on silver in a big way, it's no wonder they're trying to squeeze you dry with debit limits.

Google: Crash JPMorgan buy silver

Enough is enough. Do something that will set an example for all the other businesses out there that think we're just bloodbags to bleed dry.

March 23, 2011 | Unregistered CommenterSky Winston

All the external chimeras are being exposed in all their sensational edifications, be it social or limbic. It will be from our inner and outer virtues that all this will be turned around thru grace and courage. Systems are not expecting this. We are all awakening to pure selfhood on the other side!


Blessings

March 23, 2011 | Unregistered CommenterIN-B-TWEEN

For so many talented and smart folks, I am constantly amazed that you eat up the surface information and regurgitate it. Look deeper.

The Dodd-Franks act is the cause of the industry to react, it is a micro-managing act that gives broad powers to a branch of government that does not even exist or is not to exist under the constitution, the administrative "branch."

Banks are being told what they can charge for debit card swipe fees. The government is telling them what to charge, which in itself is over reaching. Banks were charging .44¢ now they are being told it needs to be .12¢ (based on what info, no one knows). So this process will become a liability to the banks and therefore need to push us all towards using our credit cards, which is not being hit that way.

The problem here is not the banks, but the tyranny of an over-reaching government and an act written by two men who should have been investigated for their involvement with getting rich from assisting Countrywide, Fannie and Freddie.

Please, do your research before you post.

March 23, 2011 | Unregistered CommenterTony Jones

In looking deeper into all the systems that are currently breaking down all around us; see that this actually gives us permission to be the kind and compassionate beings that we really are and live that everyday in the world ~ even though the world doesn't seem to support us. In shared hope and....


Blessings!

March 24, 2011 | Unregistered CommenterIN-B-TWEEN

Thanks for the comments, Tony. I appreciate and respect opposing points of view.

In this instance regarding interchange fees, the government is telling banks what to charge because the financial industry has a well-documented history of serving itself without regard for others.

Here's an example.

I'm a former Vice President, Director of Marketing for a bank holding company. One of the most lucrative campaigns we ran occurred during the holiday shopping season each year. The advertising campaign was a sweepstakes for customers to make purchases with their debit cards. Your name was entered into a drawing every time you made a purchase with your debit card. We'd pick a winner at random and that person would win $1,000. But there was a catch: you had to use your debit card, but choose the CREDIT option on the card reader.

Our radio and print ads walked customers through the process of how to use your debit card as a credit card ("Swipe your debit card...hit CANCEL on the key pad when it asks for your PIN...select CREDIT...sign reciept and you're entered into the drawing!").

Now why would a bank go through all of that trouble broadcasting a clunky message like that? Because the interchange fees for our bank were higher when customers used debit cards as a credit card. It meant more fee-generated revenue for us.

Furthermore, it hurt businesses that were also customers of the bank. Several of those businesses had multiple accounts with our bank (checking, savings, loans, etc.). They were customers, too. And we publicly told debit card customers how to gouge business customers' profit margins. We walked them through the process step-by-step. One lucky customer would win $1,000 in the sweepstakes while the bank made substantially more at the expense of surrounding businesses.

Does that sound like a community bank acting in the best interests of its customers?

March 24, 2011 | Unregistered CommenterGino Bona

Please watch Sen. Durbin explain
http://www.youtube.com/watch?v=6eN3GgZQoGQ

March 24, 2011 | Unregistered Commenterarthur

Didn't know anything about interchange fees. Very informative.
I currently purchase most things with a credit card and pay it off at the end of the month. I pay no fees on it unless you know....
I don't use a debit card at all (saw no good reason since it didn't earn me any rewards)
I don't use the ATM enough to get charged any use fees, but if there were fees I'd just withdraw more per transaction, so I don't go as often.
I don't write enough checks to get charged fees either.
I pay cash when i can with small businesses.
As one person already said there is a way to workaround these tactics usually.
(I current bank at Citibank and I have Chase credit cards)

April 9, 2011 | Unregistered Commenterstan

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