Recently, the U.S. Supreme Court rejected a challenge to the current rules for debit card transaction fees. Retailers filed the challenge to the Supreme Court because they thought that fees were too high.
So what does this mean for you? Well, the banks say the decision is good for consumers while the retailers who filed the challenge say it’s bad for consumers. The real answer is not so straightforward and you need to understand both sides of the argument.
Debit card transaction fees
Every time you buy something with your debit card, some of that money goes toward debit card transaction fees. The store needs to pay some money to the bank that issues your debit card and to the company that manages your card (Visa, MasterCard, Discover, etc.)
This is the reason some small retailers have a minimum of $5 or $10 for a transaction, because once the fees come out and they pay for equipment, labor and overhead, they make little or even lose money on the transaction.
When the government passed the Dodd-Frank 2010 bank reform bill, one of the new rules put a cap on debit card transaction fees. Before the bill, fees were as high as 44 cents per transaction. Now, fees are currently capped at 21 cents per transaction plus .05 percent of the total purchase. Since enactment, this aspect and many other provisions of the bill have faced challenges.
While the lower fees were an improvement for retailers, they still weren’t satisfied. Originally, the bill was supposed to cap fees as 12 cents per transaction. Retailers went to the Supreme Court hoping to push fees even lower but the Court refused to hear their case. For the time being, debit card transaction fees are going to stay the same.
What this means for you
The court ruling was bad for retailers and good for banks, but what does it mean for consumers? Retailers say this ruling is nothing but bad news for consumers. Retailers say the higher fees are getting passed along in higher prices to customers. The Supreme Court rejection means you shouldn’t expect a discount anytime soon for lower transaction fees.
While this decision won’t lead to lower prices at the store, the good news is that it might keep banking fees from going higher. When banks saw a loss of income from debit transaction fees, they looked for ways to replace that money. That’s when they started charging fees for checking accounts that didn’t have a minimum balance. Banks also got rid of debit card reward programs. As a result, this ruling may have prevented banks from charging more fees elsewhere.
The only real clear takeaway is that banks came out ahead and the system will remain the same for now. The debit card system is unlikely to face another challenge in the near future. This can be a good thing for bank stocks, as uncertainty on Wall Street can create the jitters, so if you have any banks in your portfolio, you might breathe more easily. Because some see this as a big giveaway to the banking industry, stocks may even briefly rally.
Lessons from this challenge
When it comes to banking fees, the only thing that stays the same is that they are always changing. While this challenge failed, you can bet that retailers are back at the drawing board trying to tackle this issue again. At the same time, banks are likely trying to figure out more ways to make a profit.
Perhaps the best lesson here is that you should always be coming up with ways to protect your own financial situation as well. If this ruling had passed, it could’ve turned the world of debit cards upside down. Yes, more retailers would’ve been happy to take your card, but banks definitely would not have been happy. When the first cut to debit card transaction fees went through, Bank of America floated the idea of charging its debit card holders a $5 a month fee. They dropped this idea after receiving too many complaints, but you can bet something similar would’ve occurred, had the ruling passed.
If you don’t have one already, take out a credit card to go with your debit card. That way, if debit card fees go up, you have another payment option ready to go. Credit cards also have better fraud protection, so this might be a smart move on its own. Here is a list of great credit cards to choose from.
Another good idea would be to open a low-fee checking account, either online or with a credit union. If the big banks decide to charge even more fees and create more restrictions on their checking accounts, you’ll be ready to move your business elsewhere.
While retailers and banks both claim to be on your side, it really comes down to your pocketbook. Since Dodd-Frank was enacted, bankers and retailers have all had their eyes focused on nabbing a piece of your wallet.
It’s possible that not much will change in the way of doing business, or how much retailers are charged per transaction, but you can be sure something else won’t change: all of the parties involved will constantly be scheming to get a greater share of your hard-earned money. Keep that in mind and protect yourself by keeping your payment and banking options open.