Debit users may soon feel a pinch in their purchasing power. Several Fortune 500 banking companies have suggested instituting a $100 or even a $50 spending cap for debit card purchases. These proposals come as a reaction to a new regulation under consideration that would drastically impact banking profit.
Each time you swipe your debit card (whether you use it for debit or credit), your bank charges the retailer an interchange fee of up to $.45. The new legislation under consideration would place a cap on these fees at $.12. While at face value this may seem insignificant, the cap would translate into a billion dollar loss of annual revenue for larger banking corporations like JP Morgan Chase.
These interchange fees work for the banks on two fronts. First, they compensate the bank for the financial infrastructure the retailer makes use of during a debit card purchase. Second, these fees serve to balance out the bank’s losses resulting from fraudulent charge claims. Since banks do not hold a victim of fraudulent charges responsible for the charge, that is money the banks loose. Interchange fees serve to balance out these losses.
This is where the proposed legislation could impact the everyday consumer. If the government does implement the interchange fee cap, banks will look elsewhere to protect themselves from the losses accrued through fraudulent charges. One seemingly effective way to limit these losses is to attempt to limit the amount charged during each fraudulent charge. Unfortunately, the only way to regulate the amount fraudulently charged is to regulate the amount anyone can charge. And thus the spending cap proposal is born.
No bank has made a final statement regarding what changes consumers can expect, but the prospect is not encouraging. If these changes do take effect though, one thing is certain; we can all anticipate a drastic change in our daily spending habits.