A customer swipes a MasterCard debit card through a machine. As part of the financial overhaul bill, Congress has tightened restrictions on fees businesses pay when customers make debit card payments.
A customer swipes a MasterCard debit card through a machine. As part of the financial overhaul bill, Congress has tightened restrictions on fees businesses pay when customers make debit card payments. Elaine Thompson/AP
When President Obama signs the financial regulation overhaul bill Wednesday, he'll usher in sweeping changes for everything from Wall Street investment firms to Main Street banks. The bill also gives a break to retailers who say they have suffered years of high fees on debit card transactions.
When people pay with plastic, about 2 cents on the dollar gets eaten up with fees. The money goes to the banks that issue the cards and to the payment networks Visa and Mastercard. It may not sound like much, but Sonja Hubbard, CEO of E-Z Mart, a chain of 300 convenience stores in the South, says it adds up fast.
"Within our company, we average almost $10 million a year ... on fees," she said.
Hubbard said it's the company's second-largest expense, right behind payroll.
She said those fees mean E-Z Mart actually loses money on small transactions such as a cup of coffee or a newspaper. She says one day a college kid came into one of her stores three times.
"The highest purchase was $2.35 and then the other two were below that," she said. "And so I thought, it's a frequent customer who you have to value was there three times in one day, and I lost money on every transaction."
Hubbard is thrilled about the amendment in the financial regulation bill that aims to rein in the fees on debit card transactions. It directs the Federal Reserve to set a new fee structure that is reasonable and proportional.
Everyone agrees that means merchants like the E-Z Mart stores will be paying less in the future. But there's much disagreement about whether consumers will be ultimately better off.
The banking industry is predicting this one component will cost it billions and could have unintended consequences for consumers.
"This is a cost shift from merchants to the consumers, of their operating costs down to the consumers," said Scott Talbott, senior vice president of the Financial Services Roundtable, which represents Visa, Mastercard and all of the biggest banks.
He said he doesn't think retailers are going to pass all of their savings on to customers — and he doesn't think banks will just eat the losses. These transaction fees have become a significant source of revenue.
"You could start seeing an annual fee for a debit card," he said. "You could see — like they do in Canada — a fee for a certain number of debit card transactions, or a loss of rewards or other type program."
Bank of America hasn't decided what it will do. But on a recent earnings call, company executives estimated they could lose as much as $2.3 billion of revenue a year.
Mallory Duncan, senior vice president and general counsel with the National Retail Federation, says he's convinced the change will help consumers, not hurt them. His group has been pushing to get these fees regulated for years.
"All of these swipe fees that go with debit cards are hidden from consumers," he said. "And one of the benefits of this legislation is that it pushes things into the open.
"And if the banks try to make it up someplace else, consumers have a choice about whether they want to bank with a bank that's trying to gouge them."
Banks, of course, wouldn't call it gouging. The bill also allows merchants to set a minimum dollar amount for accepting a credit card — say $10. It also allows them to offer discounts to people who forgo plastic and pay with cash or check.