Could We See $5 ATM Fees and $50 Limits on Debit Transactions?

Bank fees are on the rise. Recently, we have seen a shift away from free checking accounts at many major banks. On top of that, you might have noticed new fees being added if you don’t meet certain activity requirements, or balance minimums being imposed. My primary bank just sent out a letter detailing its new activity requirements. Customers who don’t meet those requirements are likely to find themselves saddled with fees. I meet the activity requirements, but for those who may not, this could be a rude awakening.

The slow death of truly free checking isn’t the only way that major financial institutions are changing things up. Penalty interest rates on bank-issued credit cards are on the rise as well, and financial institutions are looking for new ways to boost their income. In fact, in the quest for increased revenue, banks are now threatening to actions that seem almost ludicrous.

Debit Card Interchange Fee Cap

One of the reasons that some major financial institutions are ratcheting up the rhetoric has to do with the approaching cap on interchange fees. Right now, merchants pay an interchange fee of, on average, 44 cents per debit card swipe. (This is quite a bit less than the fee paid on credit card transactions, however.) The new rules, set to go in effect on July 21, 2011, would cap debit interchange fees to 12 cents a swipe.

As you might imagine, financial institutions are up in arms over this cap. After all, it would represent a hefty drop in revenue. In order to make up for it, they claim, more fees for consumers are on the way. Indeed, some banks are blaming new fees and account requirements on the interchange fee cap when they send out letters information customers of the changes.

$5 ATM Fees and Debt Transaction Limits

The rhetoric is heating up, and some financial institutions say that they will counter with new measures. ATM fees have been going up for years anyway, but there is a very real chance that they could make the jump to $4 or $5 in the relatively near future. For now, a $3 fee is fairly standard in many cases, and some banks have been testing higher fees in limited markets – just to see how things go.

Some financial institutions are limiting these fee increases mainly to non-customers using the ATMs. Other banks, which used to let their own customers use out-of-network ATMs for free, are toying with the idea of charging their own clients when they stray out of the network. These fees will probably serve, in many cases, to encourage consumers to look for fee-free options. There are online banks, and credit unions, that refund ATM fees. Such choices are likely to become more popular as ATM fees rise.

Another threat being made is the imposition of a limit on debit card transactions. You might be unable to swipe your debit card on transactions totaling more than $100 – or even $50 – no matter how much money you have in your checking account. CNN Money reports on the reasoning behind imposing debit card transaction limits:

“JPMorgan Chase, one of the nation's largest banks, is considering capping debit card transactions at either $50 or $100. And the cap would apply even if you run your debit card as credit.

The revenue banks get from interchange fees helps to offset money lost from fraudulent transactions. So with the Fed's proposed cap in place, banks argue they won't have the money to protect themselves against fraud. Limiting consumers' ability to pay by debit card is one way to hedge the risk, banks say.”

A limit on debit transactions could really inconvenience customers. And, for banks, it would result in better revenue as customers are forced to use credit cards – with their higher transaction fees – for purchases.

Declining Debit Rewards

Debit card rewards were just starting to catch on more widely when the announcement of this cap was made. Now, fledgling debit rewards programs are already disappearing. CNN Money reports that JPMorgan Chase said that it would reinstate its rewards program if the Federal Reserve delayed the implementation of the cap.

Of course, there are still debit rewards programs out there. Many of them require that you pay an annual fee. Others, like Perkstreet Financial, offer rewards checking and debit without fees and without minimums. There is a very real possibility that major financial institutions might find themselves losing customers to more attractive programs online. Internet banks, with their low overhead and limited offerings, have a simple business model that is attractive to many. So far, though, major financial institutions appear reluctant to change the way they do things.

What You Can Do

Many people are choosing to move their money to smaller, regional banks, credit unions and online banks. If you are concerned about rising fees and declining perks at your major bank, it might be worth it to change your bank of choice. When you close your account, you need to make sure that you let the bank know that you are leaving because of the high fees charged.

When you open a new account elsewhere, make sure that you read the fine print. Find out about fee policies, and account requirements. Some accounts seem like a really great deal – until you realize that there are debit transaction requirements, direct deposit requirements, minimum balances, and any number of other encumbrances.

We still have plenty of options for establishing banking relationships that we are happy with. Check over your options, and look for accounts that provide good customer service, and that offer real benefits for you and your money.