New Debit Card Regulations ...Changes Abound

So if you are like me in the morning you have routine. My routine consists of ironing my shirt as I watch the news (yes, I iron my own shirt... and sadly, it is therapeutic for me) and then thinking about what the day might bring. With all the talk on financial reform I could not help wonder about how it would impact me. I have already heard that big banks are announcing the end of free checking. So what else might be lurking around the corner?

One area in which I think we will see some movement is on credit and debit cards. Have you ever had this experience... I went into a gas station (large gas station franchise) and went to the drink section to buy a soda. When I get to the register they point to a handmade sign that says "minimum purchase is 3 dollars" for credit or debit cards." Exasperated I look around and see a bin of candy bars that says "two for 3 dollars" so I grab two candy bars and my drink and they gladly swipe my card for 4 bucks and some change. [Note: The worst part was they had put all the unsold old nasty candy bars in the bin but I didn't realize it until I was 30 minutes down the road.]

For most of us that experience might become even more familiar as, now with Congress’s blessing, they can make that a standard practice as long as the minimum is not more than $10 bucks. Merchants are free to offer discounts to people who opt to pay cash instead of using cards. The irony is that I hardly ever have cash so the discount for me is a zero win.

Luckily, merchants will not be allowed to give discounts based on which bank issued the card you are using. Why is that good you ask? Glad you asked. The bill gives the Fed the right to set a limit on the fees that stores must pay to accept debit cards which is called interchange. The law in its intent to focus on the big banks states that only banks with more than $10 billion in assets would be subject to the cap. So that's a good thing right....well not so fast.

Consider the downstream effect merchants may have to pay more to accept debit cards from smaller community banks or credit unions than big banks like Wells Fargo or Citi. If that happens it is only a matter of time before some stores might be tempted to offer discounts to people with big bank debit cards. It is not a stretch of the imagination to picture small retailers gladly accepting cards with the names of big banks that they recognize and then asking shoppers with cards from small credit unions or community banks to use cash or some other card. Net effect? I am forced to use a credit card from a large bank with an interest rate of 20-25 percent instead of my card from my credit union that only charges my interest of 9 %.

Another fear is that big banks will immediately use their clout to pressure Visa and MasterCard to lower merchant fees for all debit cards, not just the big banks’ cards. Now this is where it really starts to hurt...as smaller institutions like a credit union now have to absorb those losses in revenue while still competing with the bigger pockets of the large banks.

No matter what the intent was I can't help but feel that we will all face some unintended consequences of the recent changes.