Some of the nation's largest banks are considering a cap on all debit card transactions. Big banks including JP Morgan Chase, Bank of America and Citigroup might limit each debit card purchase to $50 or $100 if Congress approves new rules aimed at limiting swipe fees, industry sources said Friday.
"I'm hearing the same things that everybody else is hearing" including a possible transaction cap, said Peter Garuccio, a spokesman for the American Bankers Association. "The bottom line is this forces a minimum 70 percent reduction in revenue. Some of our members don't believe they'll be able to manage that."
Such a cap could change how millions of Americans shop. Since the average family spends $122 a week on food, according to the U.S. Department of Labor, a trip to the grocery store could put many consumers over the limit and they'd have to find another way to pay.
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"What's the alternative? Start writing checks again? Going to the ATM to get cash?" asked Gerri Detweiler, Credit.com's credit card expert. "It's not practical to say people are going to start using their credit cards because a lot of people don't have credit cards, or they are close to their limits."
Bank insiders confirmed that these institutions are considering such a cap, but they declined to speak on the record. The Durbin amendment, which Congress passed last year, required the Federal Reserve to create new rules limiting debit swipe fees, known in the industry as "interchange" fees, which retailers complain have risen steeply in recent years.
Some speculate that the threat to cap debit card use could be a strategic one.
"I wonder if this is just another effort on the part of banks and issuers to scare legislators off the Durbin amendment," said Detweiler. "I do absolutely believe there will be consumer consequences. But the idea that they would cap the amount consumers could spend on their debit cards seems like a least likely scenario to me. More likely in my opinion would be annual or transaction fees for debit cards, or fewer free checking accounts."
The Fed's proposal would cap most swipe fees at 12 cents per transaction. That's an 80 percent reduction from the current average fee of 63 cents, according to the Fed. Banks collect about $15 billion annually from the current fees.
Bank representatives accuse the Fed of price-fixing, with big potential downsides for consumers.
"The government-mandated price control elements in the Federal Reserve's proposed rule will severely affect consumers everywhere, causing new consumer fees, including checking account fees, and pushing low-income customers out of the banking system," David Kemper, CEO of Commerce Bank, told the House Subcommittee on Financial Institutions and Consumer Credit on Friday.
Retailers support the Fed's proposal, saying it would save consumers and retailers $1 billion every month. The National Retail Federation accuses banks of trying to stall necessary reform.
"Congress recognized last year that the credit card companies and big banks have been extracting monopoly-like fees from merchants and their customers for far too long," Mallory Dunca, general counsel for the federation, said in a press release.
The Fed is scheduled to release the final rules in April.