Consumers see no savings under new debit card rules

Credit card being swiped through a card reader

Remember the kerfuffle over those new Fed-imposed debit card swipe fees that kicked in last October, sending the big banks into an ill-timed feeding frenzy for new sources of revenue?

Turns out the new lower limit didn't quite trickle down as planned to merchants and consumers.

The Fed, you may recall, lowered the fee that banks charge merchants every time you use your debit card from 44 cents to 24 cents.

Sure, the move, prompted by financial reform, stands to hit big banking's bottom line.

But spare the tears: A debit card transaction actually costs banks all of 4 cents to process.

Late last year, three retail industry associations led by the Food Marketing Institute and the National Retail Federation filed suit against the Federal Reserve, claiming the Fed failed to ensure that the banks pass along the savings to merchants and consumers.

Specifically, the suit claims the Fed caved into pressure from bank and credit card lobbyists by allowing them to slip in added costs to the new fee structure that were not intended under the financial reform statutes.

"The bottom line is that we are fighting back against a rule that ignores the clear language in the law and will put more money in the pockets of the big banks at the expense of retailers and their customers," said Food Marketing Institute general counsel George Green.

A recent Wall Street Journal article reports that companies that process debit card transactions have not passed on the savings to merchants.

Likewise, Visa and MasterCard have discontinued discounts they previously offered merchants to process small-dollar debit purchases.

What is missing in these early developments is any concrete evidence that the processors in the middle are kicking back revenue to the banks.

It won't surprise me if that turns out to be the case as this whole exercise in consumer fairness has been a mammoth fee-asco from the get-go, diverted and perverted by a deep-pocket lobbying army that finds financial reform more charming than threatening.

Perhaps the retailers' lawsuit will reveal what's really happening in the back rooms as a first step toward giving consumers and merchants some relief from predatory plundering by our insatiable financial industry.

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