From: Madison Daily Leader
By ELISA SAND, Staff Reporter
Larger financial institutions like Wells Fargo are starting to test limited markets with a debit card user fee, but the limited market tests are not taking place in South Dakota.
Staci Schiller, regional spokesperson for Wells Fargo, said the $3 per month debit card activity fee is being tested for customers who opened accounts in Oregon, New Mexico, Nevada, Georgia and Washington.
Schiller said the fee is triggered if a customer uses a debit card for a purchase, but it does not apply to ATM withdrawals. The once-a-month fee is not based on the number of transactions made.
This new fee comes in response to lower interchange fees that take effect Oct. 1 for cards associated with banks that have assets of $10 billion or more.
Interchange fees are paid by retailers for every debit and credit card transaction that takes place in a store. The average interchange fee for a debit card transaction is about 44 cents. As of Oct. 1, the new fee for debit card transactions from those larger financial institutions will be 21 cents, plus a fee based on a percentage of the purchase. Schiller said the average interchange fee will be about 24 cents.
The reduced fees are being implemented as a result of the Durban Amendment, which was added to the Credit Card Reform Act of 2009.
Locally, Wells Fargo is the primary financial institution affected by these new regulations. Other affected banks in South Dakota are CitiBank, US Bank and TCF.
While other local banks aren’t currently affected, Great Western Bank is paying attention to the regulation changes because its asset level is currently above $8 billion and rising.
Floyd Rummell, market president for Great Western Bank in Madison, said the lower fees will affect Great Western Bank in the next few years, but at this time the bank is focused on maintaining its free checking option for customers.
“We are not exploring any options for fees for having a debit card or checking account,” Rummell said.
Great Western Bank has made some adjustments. Rummell said customers who make early withdrawals on CDs will see stiffer fees and penalties. Great Western has also launched a new credit card product.
Rummell said banks charge the interchange fees on debit and credit card transactions for two reasons. Not only are merchants paying for the convenience of accepting the debit card transaction, but banks use the revenue from the fees to offset fraud losses when cards are stolen and purchases are made.
“It’s a very real possibility,” Rummell said. “I see once a week where we have a few disputes from customers on transactions. If someone gets your number and starts entering it on a website, you can see a couple thousand (dollars) go out quickly.”
Curtis Everson, president of the South Dakota Bankers Association, said financial institutions bear the burden of the cost of fraudulent purchases.
“By act of Congress, it reduced the amount of income generated to deal with issuing and maintaining a debit card system,” he said.
Everson said the net effect of the legislation not only takes away revenue from financial institutions but also shifts the savings to the retailers without requiring them to pass savings on to customers.
Everson said another facet of the legislation requires retailers to have two choices for debit card payments — one requires the customer entering a PIN number; one requires a signature.
The lower interchange fees translate into a 45 percent reduction in income for larger banks. Everson said that reduction in revenue is leading banks to experiment with maintenance fees associated with accounts that have debit cards.
Schiller said Wells Fargo customers currently have built-in fraud protection. They have zero liability for unauthorized transactions that are reported to the bank within 60 days. They also have a 24-7 fraud protection service that is constantly monitoring customer transactions.
“If we see unusual activity, that raises a flag,” Schiller said.
Those protection services are currently offered at no charge, Schiller said.
The monthly fee averages out to about 10 cents per day. No decisions have been made regarding widespread implementation of this fee.
Asked if the user fee will cause a shift in customers covering more transactions with cash or checks, Schiller said that it’s too early to speculate. The choice is really up to the customer and whether the convenience of using a debit card is worth a dime a day.
“Debit cards provide a lot of value,” she said. “We hope our customers don’t take business elsewhere or move to another payment method. There’s a lot of convenience and benefit. Fraud protection is automatic. This fee goes toward those services.”
When it comes to debit card transactions, Everson said, there needs to be continued discussion about security, especially with businesses moving toward waiving signatures on purchases that are less than a set amount.
“Within the industry, there needs to be a balance between security and convenience,” he said.