Banks drop debit card rewards
Wells Fargo is the latest big bank no longer giving perks to new customers.
This post comes from Truman Lewis at partner site ConsumerAffairs.com.
Wells Fargo has joined the no-debit-card-perks posse. The San Francisco bank says it will stop offering debit card reward programs to new customers, and says no decision has been made about current customers.
Chase did the same a few weeks ago, as did US Bank and PNC.
The banks are blaming the decision on the Dodd-Frank financial services overhaul that limits the transaction fees banks can charge merchants for processing debit card sales. Post continues after video.
"Government price controls … make no sense. They distort our market-based, free-enterprise economy," Wells Fargo chief executive John Stumpf said in his annual shareholder letter posted on the bank's website earlier this month.
"What's next?" Stumpf wrote. "Will the government require car dealers to sell a new vehicle for $5,000 or grocers a gallon of milk for 50 cents?"
The Federal Reserve has drafted a proposed rule to implement the restriction. It would cap the interchange fee at 12 cents. The average fee is now about 44 cents.
The proposal followed years of complaints by merchants and consumer advocates who said the fees amounted to a hidden tax on consumers. But there have been second thoughts about the measure from, among others, the Consumer Federation of America.
The CFA, while saying it "strongly endorses the intent of the statute," echoed some of the objections being raised by banks. The rule's "implementation could have a very significant impact on consumers who use debit cards or participate in the banking system, as well as the many who do not," said Travis Plunkett, the CFA's legislative director.
Banks have also found allies in Congress, where they traditionally find about as many friends as they need. Sen. Jon Tester, D-Mont., has introduced a bill that would suspend implementation of the fee pending a two-year study.
Tester said he and his bipartisan group of supporters aren't doing this as a favor to banks. He said he's afraid the measure will wind up hurting consumers, as banks pile fees on top of fees to make up for the fees they will lose from debit cards.
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Part of the difficulty with credit and debit cards is the charge to the merchant for taking them. In essence, the merchant pays a fee so that they are "convenient" for customers to make purchases. Unfortunately, what the banks don't tell you, is that they charge a much higher fee for "rewards" cards and some other cards (AMEX, for instance, and VISA Signature cards) and a portion (not all, by any means) of the additional cost goes to the consumer. So, in essence, using your Rewards card lowers the merchant's profit margin and raises the bank's profits tremendously! If you're a "what's in it for me" type of person, the rewards card makes some sense, although the prices that you pay when you buy will have to be a bit higher than otherwise, to compensate, thus negating part of the savings... but the price for those who don't use them is higher as well, to cover the cost of those who do.
Are the banks "big bad" banks? Probably so. But, if you have stock in a mutual fund or own bank stock, you're also paying yourself.
Ultimately, if you believe in "the greatest common good," (what an ancient moral stance!) then you'll reject a charge or debit card with rewards features.
Why should banks make any more of a profit on debit cards than they do on checks (i.e., none)?
And why should consumers expect perks for spending their own money? The bank makes money from lending the funds in my checking account for an interest rate, and they make money again for each transaction on my credit card.
Checking didn't used to be free and most credit cards had an annual fee, but now you can get both for nothing. And they even have plastic checks now called debit cards (also free). Isn't that enough?
The free market kind of takes care of this itself. Small merchants will ask a higher price (in Europe) if you pay with a CC, or give you a discount (in the USA) if you pay with cash which kind of comes to the same result (in Europe the price is discounted in small stores from get-go because most people pay cash).
This way you are the one paying the CC fee and you know it. Only big box stores eat up the fee(read: distribute among all customers).
However there is a reason for the government to get involved: they push for the cash-free economy. In this case it is a matter of national policy to get the fees lower - so the cash-free society becomes reality.
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