A $50 spending limit on debit cards?
Some big banks are considering restricting the size of debit card purchases. It's part of their response to proposed federal regulations.
What if your debit card no longer worked for purchases exceeding $50 or $100?
That's one of the ideas big banks are floating as they battle a proposed limit on how much they can charge merchants each time you swipe your card.
This idea isn't going over well in all quarters. Wrote The Budgeting Babe:
Talk about alienating your customers! I use my debit card for everything -- including monthly automatic bill pay for a few accounts that definitely charge more than $100 per month. And now the banks want us to use credit for that. Credit?! Just when America was learning to wean ourselves off our credit cards! (Post continues after video.)
Under a proposed Federal Reserve rule -- implementing the Durbin Amendment to the Dodd-Frank financial reform law -- debit card "swipe" fees couldn't exceed 12 cents, regardless of whether you say "debit" or "credit." Merchants now pay 1% to 2% of your purchase, or an average of 44 cents, each time you use your debit card.
Needless to say, banks don't like this rule. Bank of America says it will lose $2 billion a year if the swipe fee is reduced. Chase says it will lose $1.3 billion. (Small community banks are exempt from the rule.)
Banks have floated a number of ways to compensate for the loss of debit card swipe revenue. (Could they be trying to drum up public support for their fight to get that part of the Dodd-Frank law repealed? A bill to put the swipe-fee limit on hold for two years so it can be studied some more has been introduced in the U.S. Senate.) Some of these have been implemented or are being tried out:
- Charging a monthly fee for debit cards.
- Ending rewards for debit card use.
- Issuing prepaid cards. There is no limit on swipe fees when we use them.
- Charging fees for checking accounts that used to be free. Many banks have already begun doing that.
And now there's the idea of the $50 or $100 limit on debit card purchases, reportedly under consideration by Chase and who knows how many other big banks. (None will comment officially about it.) A recent CNNMoney.com story explained the banks' rationale:
The revenue banks get from interchange fees helps to offset money lost from fraudulent transactions. So with the Fed's proposed cap in place, banks argue they won't have the money to protect themselves against fraud. And, of course, the bigger the purchase the bigger the risk, so banks are considering limiting consumers' ability to pay by debit card.
Keep in mind that if there's a limit on the size of debit card purchases, you'll likely use a credit card, which, like prepaid cards, aren't subject to a swipe fee limit.
The Durbin Amendment says debit card swipe fees must be "reasonable and proportional" to the banks' actual costs of processing the transactions. The Fed, which is generally very attentive to banks' concerns, will finalize the regulation in April. It would take effect in July.
Jeremy Vohwinkle of Generation X Finance said a limit on debit card spending could be harmful to those who can't use credit cards responsibly:
But the real problem comes when people who switched to debit cards to keep themselves from going into debt revert back to credit cards for their transactions. They may be able to pay off those transactions in full every month, but if they've had problems with debt in the past there's a good chance spending could once again get away from them and unravel everything they've worked so hard to control.
What would you do if your bank set a limit on the size of debit card purchases? I know I'd be seriously looking to change banks or, perhaps, join a credit union. Credit unions are owned by their members -- unlike enormous banks, which are focused exclusively on profits -- and often offer better services and lower interest rates.
The Budgeting Babe said that if Chase goes "through with this, it will be the tipping point for me to switch banks."
More from MSN Money:
VIDEO ON MSN MONEY
W. T. F???
I keep way more than $50 in my account, and the major reason I have the debit card (other than the day-to-day convenience) is for the liquidity if I needed to use a bunch of that money in an emergency.
This one's for you, B of A. You have been pretty good to me but if you even think about doing this, I am warning you, I will drop you like a rock.
This is nothing more then a scam the larger banks are doing to the American people to force us to use credit cards that have larger fees instead of Debit cards.
Its so clear even a blind person could see this. They put a ridiculously low limit on current debit cards so if we want to make a large purchase, we are forced to use a credit card with a huge interest rate, depending on credit.
I think, these major banks will do this regardless of what we say here and according to one reader, they have already limitied his debit card. We as people need to take a stand against these banks. Dont wait for them to announce this change or actually make the change, drop your accounts with them and go to a local bank or small town bank.
Since they won't listen to our words, then all we have left is our actions which can speak louder then words in some situations. When they start to see hundreds of thousands of people dropping their accounts, they will know then they have made a huge mistake.
This just takes the cake. I have been with Chase for years, and to be honest, I have had great service. But I have always kept my Credit Union Account too, just in case I had to leave Chase, I would have another option I could switch to quickly.
If they want to limit my purchases, then I will switch in an instant. The day after they make the announcement, I will bail on them.
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