The Senate Tackles Debit Cards

Hey, the good guys won a vote last night. Debit card companies charge merchants an outrageously high “interchange fee” every time you use one of their cards — a fee that’s passed directly on to you, of course — and the Senate finally decided to put a stop to it:

Sixty-four senators, including 17 Republicans, agreed to impose price controls on debit transactions over the furious objections of the beleaguered banking industry….Last year businesses paid Visa and MasterCard $19.71 billion on debit card transactions, according to The Nilson Report, a trade magazine that is regarded as the best source of data on the industry. Visa and MasterCard in turn passed about 80 percent of the money, roughly $15.8 billion, to the banks that issued the cards.

So what are banks going to be forced to do in order to make up their lost profits?

Some experts warned that lower profit margins could lead banks to curtail bank card reward programs.

Ouch! No more reward programs. I think I can live with that. But if your life got a whole lot grimmer when you heard this, consider that what it really means is that for the past decade you’ve been paying about 1% extra on every single debit card purchase you’ve made so that banks could then rebate about half that amount back to you in the form of “rewards.” Anyone who thinks that’s a good deal, raise your hands. (No, not you bankers in the back. We already know it’s a good deal for you.)

Still not convinced? Well, Europe mandates fees about one-quarter ours and somehow manages to support a thriving debit card business anyway. And if even that doesn’t convince you, go back and read this post about how debit cards used to be essentially free until Visa barged into the market and deliberately set out to force merchants into a higher-cost program, and then after they’d succeeded, raised fees on the lower cost program too. Not because either of these programs actually cost anything to run, but just because they could. If it doesn’t make your blood boil, then nothing will.

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