On Oct. 1, banks will start to lose a substantial amount of revenue from their debit cards.
The interchange or "swipe" fee that they could charge merchants for every transaction will be cut in half, basically, because of the so-called Durbin amendment to the Dodd-Frank financial reform legislation. The Federal Reserve estimates that this fee generates about $16 billion for banks each year, so banks will collectively lose approximately $8 billion in revenues starting in the fall.
How will banks react to this seismic change?
Whenever banks suffer a loss of revenue in one area, they find a way to make up for it in other areas. In the great majority of cases, the consumer ends
up paying for these changes. And this looks to be the case once again.
Many banks are already adjusting by eliminating rewards programs for their debit cards and creating new fees. Wells Fargo, for example, announced last week that it will test a $3 monthly fee for debit card users in five states: Georgia, Oregon, New Mexico, Nevada and Washington. Wells Fargo is also eliminating its debit card rewards program for all customers starting Oct. 8.
In June, SunTrust bank launched Everyday Checking, which charges customers $5 per month for debit card use. Regions Bank will add a monthly $4 debit fee to certain accounts in October. In addition to testing a monthly fee for debit card users in northern Wisconsin, Chase ended its debit card reward program for all customers in July.
Banks generally give consumers a way to avoid these fees, but they may require a higher minimum balance or a broader banking relationship. Wells Fargo customers, for instance, can avoid the fee if they sign up for designated checking accounts or don't use their debit cards.
Consumers can still find debit cards with no fees, such as those issued by Citibank or Capital One. In addition, Citibank and U.S. Bank continue to offer reward points for debit card usage if they have a personal checking account linked with qualifying products and services.
However, consumers need to watch this trend closely.
If monthly fees for debit cards prove successful in these test markets, look for these banks to assess this fee to all their customers, as well as
for other major banks to follow.