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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Debit Card Interchange Fee Ruling Could Impact Reward Checking


A federal district court judge on Wednesday overturned a Federal Reserve rule capping interchange fees that banks receive on debit card purchases. According to the Los Angeles Times:

In a scathing opinion Wednesday, U.S. District Judge Richard Leon agreed with retailers that the Fed went too easy on big banks in 2011 when it set the limit on such fees at 21 cents for each transaction, overruling its own staff's recommendation for a cap of 12 cents.

I had thought this debit card issue had long been settled. I reported on when the Fed announced the rules two years ago. The rules have been in effect since October 2011.

It may appear this ruling is good news since it’s against the big banks and the Federal Reserve. However, the ruling may affect small banks and credit unions, and it may not be good news for savers who have been helped by debit card reward programs like high-interest reward checking accounts. The National Association of Federal Credit Unions (NAFCU) published the following warning:

A federal district court judge’s decision to overturn the Federal Reserve’s rule on debit interchange fees is “extraordinary” and “will have major repercussions for members of both small and large credit unions,” NAFCU General Counsel and Vice President of Regulatory Affairs Carrie Hunt said Wednesday.

The Fed’s debit interchange fee cap – 21 cents per transaction – applies to all debit-card issuers with more than $10 billion in assets, but NAFCU holds that market forces will, over time, force all issuers to adopt the cap. Hunt said the effects of the court’s ruling vacating the Fed regulation – both with respect to the debit interchange fee cap and provisions on network exclusivity – will likely be felt by all issuers, including the smaller credit unions and banks the Durbin amendment purports to protect.

It will likely take a while before the banks and credit unions feel the effects of this ruling. According to the Washington Post:

Fees will not be lowered, however, until the Fed adopts new standards. In the decision, Leon said it should take “months, not years” to develop new rules. But Guggenheim Partners predicted that the current fees will remain in place through 2014 or even longer, because the Fed may appeal the ruling.

Even though there will likely be no direct immediate effects, I worry it will add uncertainty to debit card interchange fees. That may discourage bank and credit union managers to adopt reward checking accounts which depend heavily on debit card interchange fees. If managers had doubts about reward checking accounts, this ruling will only add to those doubts.

To learn more about reward checking accounts and interchange fees, please refer to my articles, The Future of High-Yield Reward Checking Accounts and 10 Common Traits of High-Yield Reward Checking Accounts.

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moo lah
moo lah   |     |   Comment #1
the government and the courts have managed to completey destroy reward checking accounts.  it's already nearly impossible to make more than $20 a month with these accounts, as compared to $150 a month when they began years ago.

Anonymous   |     |   Comment #2
I thought transactions using my debit card "as credit" (or pinless) are treated just like credit cards? These transactions are a requirement for almost all Reward Checking Accounts. When I use my debit card "like a debit card" (or with a pin), these pin-transactions are useless to meet the requirements in Reward Checking Account. I thought the Debit Card Interchange Ruling only applies to pin-transactions and not pinless-transactions?!? And, if I swipe my debit card "as credit with no pin", how does the network know it's a debit card and not a credit card (i even choose "credit" on the screen)??
Anonymous   |     |   Comment #3
The interchange caps apply to Visa/MC Debit cards even if they are processed as credit at the retailer.  The processing networks can distinguish the type of card it, i.e debit, credit, business, rewards, etc, so the appropriate interchange can be assessed.
Bancxman   |     |   Comment #4
The statement in the Washington Post article about the Federal Reserve appealing this ruling is noteworthy. Unless attitudes there have changed, it would seem likely for the Fed to appeal this ruling to the U.S. Court of Appeals for the District of Columbia Circuit. Although the outcome of an appeal is obviously impossible to acurately predict, this would be a much simpler task than undertaking the arduous procedures for promulgating new regulations on interchange fees. An appellate decision supporting the district court would add an element of finality to this issue whereas new regulations would be subject to yet more court challenges. An appeal would also likely offer the additional benefit of giving various bank associations and public interest groups an opportunity to submit amicus briefs supporting their respective positions.

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