WASHINGTON — A government crackdown on debit card “swipe fees” is unlikely to benefit consumers, as banks seek makeup fees and retailers take the savings down to their own bottom line.
For months, retailers, card network companies and big banks brawled in Washington over the fees and launched nationwide advertising campaigns. Consumers were often portrayed by retailers as the ones victimized by the billions of dollars in debit card processing fees that banks charge merchants.
On the eve of the mandated lower fees, it appears the skeptics who feared the measure would backfire on consumers were correct.
Bank of America said Thursday that it plans to charge customers who use their debit cards to make purchases a $5 monthly fee.
Rep. Barney Frank, a co-author of last year’s Dodd-Frank financial oversight law, said he opposed including the crackdown in the legislation. He said Friday that shoppers are unlikely to benefit.
“I regard this as mostly a dispute between two groups of businesses, banks and retailers, and the consumer gets squeezed,” Frank said. “The banks will charge you more, and I don’t think the retailers are going to charge you less, which is why I didn’t want to put it in the first place.”
Sen. Dick Durbin, D-Ill., led the charge to include the swipe fee limits. He has maintained that the legislation will decrease prices for consumers and help small merchants struggling to meet processing fees that amount to about 400 percent of the processing cost.
Dodd-Frank called on the Federal Reserve to craft the limits, which set the stage for a massive lobbying campaign. Banks and card network companies tried to get the cap set as high as possible, while retailers pressed for a low cap.
The Fed capped “interchange fees” at an average of 24 cents per debit card purchase. The current average fee is 44 cents on a typical debit card purchase of $38.
That translates into a $6.6 billion annual hit to financial firms, according to an August study by Javelin Strategy and Research.
Javelin also noted that seven of the top 10 banks had announced plans to eliminate free checking and the so-called Durbin amendment has banks rethinking their customer services.
The writing was on the wall for consumers. A November 2009 report from the Government Accountability Office found that limiting swipe fees would be good for retailers but not necessarily for consumers.
The independent congressional watchdog found it would be difficult to tell whether retailers were passing along any savings to consumers, and that consumers might face higher card use costs as banks made up for lost income.
Direct Response Forum, an annual meeting of payment professionals, surveyed 169 retail executives and found that 41 percent of merchants said they won’t pass on the savings, and 56 percent weren’t sure.