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debitcard_Edited.jpgDid you know that financial institutions make money every time you swipe your debit card?

No, you're not being charged without your knowledge. Financial institutions actually earn a percentage or your transaction amount--about 1.14%--and the merchant is the one required to foot the bill for utilizing the debit service. Yeah, 1.14%; that's not too much right? Wrong. Considering each purchase, it's certainly not a very large amount. After all, 1.14% of a $1,000 purchase is only $11.40. The kicker, though, is when you account for the amount of individual debit swipes per year for every debit card in the country, all 520 million of them. Debit swipes alone contribute around $16 billion to the financial industry.

Never fear. The Federal Reserve is here! And they're cracking down on financial institutions' take on the loot.

The interchange fee (i.e., the amount awarded to financial institutions to process debit swipes and cover fraudulent charges) will be limited to 12 cents for all purchases, no matter the amount. This essentially will cause financial institutions to miss out on billions per year. The problem, however, is financial institutions are threatening to not allow debit purchases below $50 or $100. Basically, if they can't recoup the funds they feel they deserve, we're going to pay for it (metaphorically).

The final outcome--whether this is actually going to pass--will be issued in April. Now we just have to wait and cross our fingers. If financial institutions put a minimum amount on our debit purchases, consumers may be forced to return to checks and carrying vast amounts of money, or, if they can actually qualify, put everything on credit cards. And that is certainly a scary thought.

I wrote a blog post back in October about this silly little campaign called Stand Up For Your Right to Write Checks. At the time, it seemed a silly idea. But now, checks could be one of the major sources of transaction again. If they'll allow me to make purchases less than $50 or $100 without keeping cash on my person, I'll give 'em a go. Thanks financial system!

Photo taken from this photostream and used with permission of a Creative Commons license.

Linda Hughey

I'm not normally one to stick up for the 'big bad banks', but your post infers that all financial institutions are greedy, money sucking machines that rob the consumer. The vast majority of financial institutions, banks included, are not run in this manner. I am the Chief Financial Officer for an $85 million credit union in Michigan. Our members enjoy free checking, free home banking & bill pay, and many other no or low cost services. Debit cards play an integral role in giving our members convenient 24/7 access to their money. It costs my credit union money to give our members this convenience. As the card issuer, we bear all of the costs to issue the cards, process the transactions, guard against fraud, block and reissue cards when there is fraud, and credit the member’s account for all fraudulent activity on their account. Neither the member nor the merchant is out one dime if fraud occurs, even if the fraud happens due to their negligence! A member can write their PIN number on the card and not bear any responsibility when the card is stolen and the thief empties their account. A merchant can fail to keep their data system properly secured and not bear any responsibility when their system is hacked and the thief uses the hacked information to make fraudulent purchases on thousands or even millions of cardholder accounts. It is the issuing financial institution that is left holding the bag! Debit interchange is not our way of gouging the cardholder or the merchant. It is our fair compensation for providing our members a convenient, safe method of access to their money and for providing the merchant the GUARANTEE that the payment is counterfeit cash, no cash handling expenses, no bad checks, and no responsibility if fraud occurs! You are exactly right when you say that you have a choice……you can go back to carrying cash or writing checks and merchants can go back to only accepting cash or checks as payment. Is this likely to happen? I highly doubt it....members and merchants like the convenience and safety of debit cards too much to give them up. So…..what’s my point? As my grandma always used to say, “You don’t get something for nothing.” Whether we as consumers like it or not, it costs money to provide goods and services and everyone has to pay for the goods and services they choose to use, so be a savvy shopper! Respectfully submitted, Linda 

by Linda Hughey on March 17, 2011

 Thanks for your comments and you’re right, there are many free services financial institutions provide, some of which consumers likely take for granted. The interchange fee changes are a complex topic that is affecting a lot of different people and industries. We really appreciate you sharing an additional perspective. As always we recommend consumers be well-researched about their accounts and policies. Hopefully this information helps them to do that.  

by jenniebartlemay on March 18, 2011

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