52.7 F
Davis

Davis, California

Monday, November 29, 2021

Banks to start charging debit card users monthly fees

More banks are jumping on the bandwagon to charge debit card users a monthly fee, since the enactment of the Durbin Amendment on Oct. 1. The new law reduces approximately 50 percent of the amount retailers have to pay to banks for debit card swipe fees.

The amendment caps debit card transactions for retailers at 21 cents per transaction, as opposed to the previous 44 cents per transaction.

The Durbin Amendment is a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

According to Govtrack.us, the bill promotes financial stability of the United States by improving accountability and transparency in the financial system, to end “too big to fail,” to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial service practices and for other purposes.

Sen. Dick Durbin (D-Illinois) said the amendment makes retailers more profitable. In particular, gas stations, since they lose profit due to debit cards.

To compensate for the loss of revenue due to slashed debit card fees, banks are either charging a debit card usage fee or offering more rewards to credit card owners to make credit card usage more appealing. In addition, some banks are ending debit card rewards.

According to Cardratings.com, banks are more likely to find credit cards more profitable under the new law. On average, for purchases over $10.50, the credit card issuer will make more in fees if a credit card is used instead of a debit card.

Currently, Bank of America plans to charge their customers a $5 monthly fee beginning early 2012. Chase and Wells Fargo are already testing a $3 monthly fee in some states. U.S. Bank, which has locations on the UC Davis campus, is waiting for feedback about the fees from other bank customers before planning to instigate a debit card surcharge.

“U.S. Bank has no immediate plans to implement a monthly debit fee,” said California U.S. Bank spokesperson, Teri Charest in an e-mail.

For many major banks, these fees will apply to those who use debit cards for purchases and not for those who don’t use their cards for purchases or who use them only for ATM transactions. For some banks, a balance under $1,500 will call for the monthly charge.

“The fees that banks can charge businesses for the use of debit cards has been reduced and this is hurting profits,” said UC Davis professor of economics Kevin Salyer in an e-mail. “Charging the users of debit cards directly is a way to recoup some of those losses, but comes at the risk of customers taking their business elsewhere.”

Some banks, such as Ally Bank and Charles Schwab Bank, have offered free debit cards and checking accounts with interest without any additional surcharges.

An Ally Bank spokesperson said the bank hasn’t increased fees or implemented any new fees due to the new law.

“Banking is a highly competitive business environment!” Salyer said.

CLAIRE TAN can be reached at city@theaggie.org.

LEAVE A REPLY

Please enter your comment!
Please enter your name here