Amendment on Debit Card Interchange Fees and Its Impact to Reward Checking

Yesterday the Senate approved an amendment to the financial reform bill that could have significant impact to debit cards and the fees retailers pay. A major reason reward checking accounts are able to pay high yields is due to the interchange fees that retailers pay every time you use your debit card. The amendment would require the Federal Reserve Board to set "reasonable and proportional" interchange fees for debit cards. It would seem likely that this would impact reward checking accounts.

This commentary at The Daily Caller contends that the amendment would just shift costs to consumers. It describes what happened in Australia when similar laws were enacted:

In reviewing Australia’s caps on interchange fees, for instance, the GAO noted in its November 2009 study that in response to these controls, card issuers "reduced rewards and raised annual fees" for Aussie card holders. Worse, it appears that none of the $1 billion in savings that merchants received as a result of lower fees were passed on to consumers in the form of lower prices., the GAO noted.

The amendment excludes cards issued by banks and credit unions with assets of less than $10 billion, but that didn't satisfy concerns from the Credit Union National Association which argues that it "would not do a great deal of good for credit unions and consumers." As described in this CNN article, "analysts suspect Visa and MasterCard will simply choose to levy the lower interchange rates across the board, on all debit purchases."

In addition to reducing interchange fees, the amendment could have other effects on reward checking customers. It may become more difficult for consumers to make small debit card purchases. As described by Bloomberg, "The amendment permits retailers to offer discounts for cash, checks or debit cards, or for a particular card brand, and would let merchants set minimums and maximums for credit-card purchases."