Interchange Fees Forum

My dad is one of the few people I know still writing checks to local merchants. Most of us, when we want to pay in “cash,” use our debit cards.

But now that we’ve all been successfully hooked on plastic money, it might get expensive.

When you swipe your debit card to pay for something, the merchant has to pay your bank or credit union a fee, called an “interchange fee.” How much that is varies depending on the retailer’s size and the bank. But it’s a percentage of the purchase.

So if the rate is 2 percent, and you buy a $10 item, the retailer pays 20 cents. If you buy a $100 item the interchange fee is $2.

Processing those two transactions is no different for the bank, so why is the amount the retailer has to pay so different?

It shouldn’t be, according the government. So the Federal Reserve is imposing a cap on how much financial institutions can collect from merchants who accept debit cards.

The proposed cap is 12 cents per transaction. Banks can charge a percentage, but the charge can never be more than 12 cents – whether the item costs $12 or $1,200.

At first blush, this looks like a good thing for consumers. If merchants are charged less for this, they will have lower costs and can offer lower prices.

But Linda Darling, executive vice president and chief financial officer at Suncoast Schools Federal Credit Union, said that hasn’t happened in other countries when debit card interchange fees were cut.

Darling said the credit union isn’t against changes in how the interchange fees are assessed. But a cap of 12 cents isn’t enough to cover costs of the debit card processing.

Already, Darling said, consumers are getting hurt. Large banks have started charging for checking accounts that used to be free in anticipation of changes in the interchange fee.

If the fees are capped, the credit union also will have to look at a change in the free checking account services it offers members, Darling said.

This might involve things such as a fee for using debit cards, a limit on the number of free debit card transactions you can make, or a limit on the amount you can pay using a debit card.

Suncoast has launched a campaign to get its members to call Congress. An email went out to members with the subject line: “How important is free checking to you?”

Under the system, retailers are paying for the convenience of not having to process checks or deal with cash. And banks are making money off the debit card interchange fees.

The fee cap is set to go into effect July 21. And if it does, someone is going to absorb the cost of this loss of banking income. My guess is it will be those of us who use debit cards.