Banks & retailers battle over debit card fees

RICHMOND, VA (WWBT) - Every time you swipe your debit card at a store, a small percentage of that money goes to your bank for letting you use the card. There's a proposal to cut that fee down.

Stores say that will keep costs down. But banks say that will cut their ability to offer free services.

The Federal Reserve says the average cost per swipe is $0.44. But the Fed says the real cost to banks is only $0.04. The Frank Dodd Act includes a proposal to cap the fee to a maximum of $0.12.

Said Mike O'Conner, President of the Virginia Petroleum Convenience and Grocery Association, "The fees are definitely unreasonable that the banks are charging right now. Who ends up paying? The retailer and the consumer."

O'Conner points out these interchange fees are based on a percentage of the sales price. So as gas prices rise, "We're looking at a $1.65 just for the banks for the privilege of using that card. That's more money that we make for selling the gas."

But banks say the cost to run each person's "free" checking account is $300 to $400 a year. The debit card fee covers that cost.

Said Bruce Whitehurst, President of the Virginia Bankers Association, "When you have that large of a drop in revenue source that supports the ability of banks to offer checking accounts and all kinds of features, without necessarily charging any fees other than the debit fee, then obviously banks are going to have to look at how they price these kinds of accounts."

Some banks are considering cutting free checking, rewards programs, or even the amount of money you can access per swipe to $150.

But many retailers say the fee cap would let them cut prices. Home Depot says it will pass $35 million a year in savings onto customers. But bankers point out there's no guarantee.

Said O'Conner, "There's no corresponding mandate on the retailers to drop prices. So the consumer is paying for this shift of money from one industry to another."

Federal Reserve Chairman Ben Bernanke says he will miss the April 21 deadline to write the final rules on the swipe fees because of an extraordinary number of comments on the proposal.

The change is supposed to take effect July 1. But there are proposals to delay it for two years for further study.

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