Financial reform bill 101: What it might mean for your debit card

The financial reform bill passed Thursday in the Senate could reduce costs to retailers. That might allow them to offer you discounts for using cash or certain cards.

Sarah Beth Glickstein/The Christian Science Monitor
A customer uses a debit card to buy a toy for her daughter at a store in Boston in September. The financial reform bill could lower the fees merchants pay to accept debit cards, and might allow them to offer discounts for using certain cards.

The financial reform bill that passed the Senate Thursday contains sweeping provisions that affect the big guys of Wall StreetGoldman Sachs, Bank of America, and so on. But tucked away in the fine print are things that could directly affect your own financial habits.

Take that plastic in your wallet. (“Please do,” some of you might say. “I use it too much.”)

The Senate legislation might change which debit or credit card you swipe, on a store-by-store basis.

Here’s why: the bill would place a soft cap on the fees that banks charge retailers for debit card transactions. Most of us don’t stop to think about it when we’re buying that emergency cat food, say, but when we swipe that card, somebody has to pay to process the transaction. That somebody is the retailer. As you might expect, banks make a lot of money off this.

Right now, Visa and MasterCard charge retailers one to two percent of the cost of whatever you buy for the privilege of using their debit cards. That does not sound like much, but it is a lot more than what it costs the banks to actually process your payment. So a provision in the Senate bill would direct the Federal Reserve to issue rules making sure those debit card fees are “reasonable and proportional to the processing costs incurred.” Or, in other words, lower.

(This would only apply to banks with assets of $10 billion or more.)

But that’s not all, as they say on infomercials. Right now, it is technically against the rules for retailers to offer discounts to people who use certain debit or credit cards, or cash. It is also technically against the rules for them to set a minimum purchase price for credit or debit card use.

Yes, we know lots of stores do it anyway. We’ve seen those “Ten Dollar Minimum Credit Purchase” signs by registers too. Look, retail is a tough business.

Well, the Senate bill explicitly would allow such discounts, for cash, or for certain debit or credit cards. So a merchant could give you a lower price if you use Visa, as opposed to American Express. The intent here is to introduce more competition into the plastic card market.

Technically speaking, these changes would lower the costs to retailers, while cutting into the profits of banks. But would they lower your costs at the check-out counter? That’s debatable. Charging people lots of different prices for things depending on what their method of payment is would be a huge pain for retailers. It is hard enough for them to keep track of their stock as it is. Most likely, they would just pocket the money from the lower fees, rather than pass along the savings.

Remember, it is also entirely possible that these changes will not become law. They are not included in the House version of the bill, and thus could be left on the cutting room floor following the upcoming House-Senate conference that will meld the two versions.

However, even if they do not get through, they are a good example of the sort of changes that this bill makes up and down the whole spectrum of US economic activity. It is not just about the big banks. It is about your mortgage, and how you purchase autos, and the rules governing what sorts of paperwork that insurance companies mail you, as well.


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