A recent article by Lloyd Constantine of Business Week titled “Let’s End the Debit Card Fee-for-All” makes the case that the Fed should begin to start cracking down on debit card fees. Constantine was the lead counsel for the bevy of retailers (led by Wal-Mart) that successfully forced Visa, MasterCard, and other banks to discontinue the practice of requiring retailers that wanted to accept credit cards from being forced to also accept debit cards as well as force the card issuers to more clearly label debit cards as in fact debit cards and not credit cards.
Constantine argues that this successful suit that completed in 2005 was a good thing and I agree. He makes the case that the next step for curtailing fees is for the Federal Reserve to begin to exercise oversight over debit cards just as they have done with credit cards. While overly burdensome overdraft fees are a cause for concern with debit card issuers the largest concern is pronounced to be debit card interchange fees (over $20 billion in 2008). Constantine makes the case that debit cards should not be a costly expense for the banks because after all when a consumer uses a debit card the bank does not have to go through the hassle of and related expense of processing a check or accepting cash.
Constantine does make some valid points but on this particular point I believe that he is mistaken to some degree. While debit card issuers do not have to incur the expense of processing paper checks or other related “physical” bank teller expenses the debit card issuers do in fact still have to pay for the quite large expense of maintaining a staggeringly immense system to process millions and millions of debit card transactions accurately and promptly with minimal downtime.
Have you ever tried to use your debit card or credit card at a gas station or convenience store or other small business and for some reason their credit card terminal was offline and not working? What did you then have to do if you still wanted to pay with your debit card or credit card? You had to wait while the clerk called a phone number to manually authorize and charge your credit card.
It is quite amazing to think about really when you consider the type of infrastructure that the card issuers (both debit and credit) have to maintain on a daily basis where even the briefest blip of downtime can result in millions of failed transactions. While Federal Reserve oversight to curb any potential abusive practices in the debit card industry is a good thing I do not think that pretending that debit card issuers do not deserve to set and charge fees for their services is a good thing.
Time will tell if the Federal Reserve decides to step in and makes its voice heard in the debit card arena as it has in the credit card arena. In the meantime, why are you still using a debit card anyway when you can use a cash back credit card or a rewards credit card? Start finding the best credit cards today!
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