Banks Likely to Pass Debit Card Limit Pain to Customers

Published February 23, 2011

Bill Hardekopf, CEO of, which tracks more than 1,000 credit cards for consumers, discusses recent government proposals to limit debit card fees with The Heartland Institute’s Arin Greenwood. These are excerpts from a podcast interview which may be heard in full at
AG: What has the Fed proposed?
BH: Well, the Fed has proposed they would limit the debit card fees to a maximum of 12 cents per transaction. And that’s a pretty huge change over what’s there right now. Currently, debit fees range anywhere from 1 to 2 percent of any transaction you make. So if you go and buy $200 worth of groceries, it can be a debit fee of about . . . up to $4 for that retailer to pay the bank. Now all of a sudden, what the Fed is proposing is that be a maximum of 12 cents.

So you can see that banks are losing a tremendous amount of money, and retailers, correspondingly, are making a lot more money.

AG: And why 12 cents? Where does this number come from?
BH: That I don’t have an answer for. . . . I don’t know what their reasoning is. When it comes to debit fees, when it comes to you using a debit card, that money is coming straight out of your checking account.

It’s very unlike a credit card fee, where the retailer is floating some money for a period of time or the bank is floating some money for a time. The bank wants to be reimbursed for that. Therefore, they assess a fee to that transaction. When it comes to the debit card fee, though, that money comes immediately out of your checking account, so the Fed has determined that those are the costs involved. . . . How they came up with the exact 12 cents, I don’t know.
AG: And what is this going to mean? Who is this good for, and who is this bad for?
BH: It’s fantastic for the retailers. The retailers have fought hard for this ruling, and they have gotten it. It will save them billions of dollars.

Correspondingly, it will be very harmful to the banks. . . .Our analysis is that the banks are simply going to pass that on to the consumers, so it will be bad for the consumers in the long run unless the retailers lower their prices correspondingly. We really can’t see them doing that. I can’t see them taking a 99-cent item and making it 98 cents just because of this debit card ruling.

We really think they’re just going to pocket that money in the great majority of cases.

What that will mean is that the banks will find a way to make up for that lost revenue, and that will mean assessing additional fees to consumers.

Arin Greenwood ([email protected]) is editor of The Heartland Institute’s Out of the Storm News.