The new “Restoring American Financial Security Act of 2010” is going to hit banks hard by reducing debit card fees that stores have to pay. The 2% charge might seem small, but has brought banks $20 billion dollars in revenue. The new bill won’t eliminate the transaction completely, but it will lower it by 25-30%. Merchants will also be able to set a limit on purchases to at least $10, causing people to either make a bigger purchase, or carry cash again. (cash article)
Consumer Benefits of Debit Card Changes
There is personal financial potential with this change if used correctly. With a $10 minimum purchase, people will do one of two things. They will carry more cash around to avoid reaching the threshold, or they will by more to reach it and use their debit card. I am a big proponent of self control and responsibility, and hope that this will get people to the ATM to pull out cash. This is all going to depend on the individual.
Credit Card Benefits of Debit Card Changes
Another possible reaction to this change is that people will use their credit cards more often for small purchases. This might increase credit card perks. Debit card perks might dwindle, since it will be harder for banks to offer them to people with the loss of revenue due to a lower debit transaction fee. This could be a good way of helping people improve their credit score. Making small credit purchases and paying them off at the end of the month improves your credit and your FICO score.
Banks Lose Big Time with New Debit Card Changes
The interchange fees are a big part of the banking industry and the struggling industry is going to take a big hit. MONEY magazine speculates that this might be the end of free checking accounts, since banks are looking for ways to get back lost revenue already. If the banks are taking such big hits, then the rewards they offer for debit card use probably will disappear. This change is a big win for stores but a potential loss for everyone else.
What are your thoughts on the new financial reform proposals? Will this change affect you or not?