We’re coming up fast on the 9-month mark since new debit-card fee rules went into effect in October. The war between banks and retailers left consumers, including you and I, rather voiceless about the changes the two sides made in response to the legislation. One supposedly positive outcome of the new rules was lower prices. However, I didn’t notice any major savings. And I probably never will.
The rules, which reduced the fee paid by merchants to banks for processing debit card transactions, were subject to debate for the better part of 2011. But even before these rules were finalized, the larger banks stopped offering free checking accounts and debit-card rewards programs to make up for the impending revenue drop. The retail industry, in turn, promised to turn those savings over to consumers in the form of lower prices.
The rules’ impact to many bank customers was staggering. The 10 largest U.S. banks hold more than half of the total consumer deposits in the country. Now, only one of them — PNC Bank — offers free checking. At the rest of the top 10, the average monthly service fee for a non-interest checking account is $9.93.
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Although many consumers watched their checking accounts become pricier last year, I did not. My checking account from Chase was already imposing a $6 monthly fee if I didn’t make five debit card purchases or have a monthly direct deposit. I was, and I still am, avoiding this fee. (The terms remain unchanged for grandfathered accounts.) The debit card rewards didn’t matter to me because I put all purchases on my cash-back credit card.
So, the new rules should have translated into savings for me. Since merchants are supposed to offer lower prices, it doesn’t matter if I use a debit card, a credit card or cash. However, for the average consumer, finding (or simply identifying) these discounts will be close to impossible.
Earlier this month, Dwaine Kimmet, treasurer and vice president of credit at Home Depot, told American Banker that the store slashed prices on more than 3,000 items of its 40,000-product line. But, Kimmet didn’t hold the new debit-card fee rules directly responsible. Most consumers probably do not shop at Home Depot often enough to see the price cuts.
Hard to measure
The Electronic Payments Coalition (EPC), an association made up of banks, credit unions and card networks, launched a campaign called “Where’s My Debit Discount?” to point out the apparent failure by retailers to transfer lower operating costs into consumer savings. From milk at Walmart to a Slurpee at 7-Eleven, the EPC couldn’t find any price drops.
The lack of definitive proof of savings is not surprising. So many factors can go into the pricing of consumer goods and services. Instead of just slashing prices, retailers could just hand out more coupons or hold more discount promotions — things that are much more difficult to track.
The recent trend in merchant-funded rewards programs may also have benefited from debit-card rules. In these programs, consumers receive deals and offers — often in the form of cash back — based on their spending history. Merchants pay banks when customers take advantage of these offers. Yes, it is ironic.
But again, it would be wrong to correlate the rise in coupons and deals with the debit-card rules.
From the consumer standpoint, the entire ordeal is understandably frustrating — you can definitely feel the hassle in maintaining a checking account, while it is tough to pinpoint the savings.
I can’t put a finger on which side — banks or retailers — makes the better argument when it comes to the idea of offering better prices. I can only continue to keep a close eye out for deals and take advantage when I can get them.
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