$50 cap on Debit Card Purchases and new Fees

[Orlion]

One more point on the operating systems ... I know that people get annoyed with patches and updates. But think about that *free* service which Microsoft provides (without the government forcing them to do it). Do you know any other product in the history of mankind that is continuously updated and made better at no cost and hardly any effort on the part of the consumer? There is no warrantee to fill out, no product to ship back and get repaired. Microsoft will *automatically* update a product which you purchased years ago! Imagine if your car came with such a service, where the manufacturer came over to your house and repaired it for you at no charge while you slept ... for problems that you didn't even know about.

This service was not mandated by the government. And it's not necessarily evidence of an inferior product to begin with ... patches are often released because of 1000s of hackers around the planet are trying to make our lives miserable. It would be like an onslaught of car vandalism running through everyone's neighborhoods and the manufacturers coming out to defend this product you bought years ago.

They don't have to do it. It's an amazing service. And yet people still gripe about it and use it as evidence that the free market sucks. I don't get it.

***Edit***

How about you show me an example devoid of any government regulation, Z? Why don't you show me an example of product development that appeared completely through market forces without any government involvement and show that as time in that development went on through competition, that product got better. If you really want to disprove me, do that.

I never claimed that the market could function with zero regulation, so there is no burden of proof on me to back up that claim. Your claim was a general, absolutist claim, phrased in a way that could be falsified with a single counter example.

First point I thought of after I posted, with the obligatory s#!+.
I never claimed either that an economy functions best with zero competition.

Besides, as a structural point (because it seems we agree on more then we've let on but found ourselves on opposite sides of a spectrum somehow) To falsify a general, absolutist claim, wouldn't you require a contradictory general, absolutist claim?

[Vraith]

The problem with debit card fees and limits is that it violates the basis of the bank/customer foundation.
Banks need deposits/cash so they can make money.
The checking account is a service they provide...holding for safety and convenience our excess cash in exchange/hopes for us to use their other services...loans/credit cards and savings accounts and CD's and such on which they can make a profit. Debit cards exist because they're cheaper for the banks than the old way.
And these limits are denying access to our own money...charging us for it as if they could exist at all without our money.
It's like I loan my shovel to my neighbor so he can dig a drainage ditch, and then he charges me a dollar for letting him use my shovel, and only lets me use my own shovel on Tuesdays and Thursdays.

[Zarathustra]

...it seems we agree on more then we've let on but found ourselves on opposite sides of a spectrum somehow)

Debates often take on a life of their own. I did find our contention odd, because we agree on many other things. But none of this is personal for me, I'm an equal opportunity debater.

To falsify a general, absolutist claim, wouldn't you require a contradictory general, absolutist claim?

Nope. If you say "All x have property y," and I discover an x without property y, then the generalization has been proven false.

Vraith, but what if you don't like carrying around a shovel everywhere you go, and your neighbor comes up with an electronic teleportation system that instantly materializes your shovel for you no matter where you are in the world so that you can use it temporarily, and then forget about it once again? Are you saying that wouldn't be worth something to you?

[Vraith]

Vraith, but what if you don't like carrying around a shovel everywhere you go, and your neighbor comes up with an electronic teleportation system that instantly materializes your shovel for you no matter where you are in the world so that you can use it temporarily, and then forget about it once again? Are you saying that wouldn't be worth something to you?

But they used my money to be able to make that system, I've already paid for it. So my shovel is covered.

[Harbinger]

Vraith, but what if you don't like carrying around a shovel everywhere you go, and your neighbor comes up with an electronic teleportation system that instantly materializes your shovel for you no matter where you are in the world so that you can use it temporarily, and then forget about it once again? Are you saying that wouldn't be worth something to you?

That would be awesome. Imagine not having your junk in the way when you were playing sports and stuff. That would be worth a lot.

[Orlion]

...it seems we agree on more then we've let on but found ourselves on opposite sides of a spectrum somehow)

Debates often take on a life of their own. I did find our contention odd, because we agree on many other things. But none of this is personal for me, I'm an equal opportunity debater.

To falsify a general, absolutist claim, wouldn't you require a contradictory general, absolutist claim?

Nope. If you say "All x have property y," and I discover an x without property y, then the generalization has been proven false.

Vraith, but what if you don't like carrying around a shovel everywhere you go, and your neighbor comes up with an electronic teleportation system that instantly materializes your shovel for you no matter where you are in the world so that you can use it temporarily, and then forget about it once again? Are you saying that wouldn't be worth something to you?

Yeah, you're perfectly right, upon thinking about it more and cooling off from some studying with some Esslemont, I find I am further from knowing what I was posting about

[Ki]

Because the bank has no interaction with the merchant. It's as if the customer had pulled the cash out of his pocket. In this case, it doesn't matter *where* the customer got the money; if he'd swiped an old lady's purse to pay for the widget, you wouldn't call the old lady a party to the transaction, would you?

Oh my dear GOD!!!!!! The freakin bank guarantees the payment!! When you swipe the card and the machine says, "approved" who do you think is "approving that transaction?" The merchant? The customer? No! It's the BANK!!!!

EDIT: Because everybody else got there first.

But to amplify what you've said, Ki -- and Orlion, you are correct: It's not actually the bank who says your debit card transaction is approved. It's Visa or Mastercard, who are guaranteeing that the merchant will get paid.

(Credit cards work the same way, really, except that the bank is agreeing to loan the customer money for the widget instead of taking it out of his account.)

I used this exact scenario with my daughter's Girl Scout troop to explain the banking system to them. The props were a box of cookies and play money. One girl was the merchant, one was the customer, one was the banker -- and I got to be Visa.

I'm confused about what you've been saying before now b/c it kinda sounds like you didn't think that banks have involvement in debit card transactions, but now it sounds like you do acknowledge their involvement. While I might have been mistaken about who guarantees what as far as payment goes, it is a system that was set up outside the merchant and customer relationship and financial transactions that occur as a result take place "behind the scenes" so to speak b/w banks, w/o the customer having to go personally to the bank and w/o the merchant having to go personally to the bank to complete the transaction.

I would also like to point out something that merchants, I think, agreed to accept debit card transactions b/c in the beginning a 44 cent fee was probably a small price to pay for a guaranteed payment (instead of risking a bounced check).

[DukkhaWaynhim]

After doing some light reading, apparently it isn't Visa and Mastercard that set the fees at all, but the merchant banks themselves. Retailers can either pass the merchant bank fee on to their customers, or eat it themselves, but speed is the compelling factor, along with the guarantee of payment. Also interestingly, there is standard wording in the merchant agreement that forbids the retailer from setting a minimum purchase amount for Visa/MC card swipes.
For debit transactions, banks don't want their cash cows stolen from them, since they get paid pure profit far above their cost each time they process a transaction. Remember, this is not a credit extension, the transaction first checks available balance in the account before it approves the debit, so there is hardly any chance that the payment can default, so the 'guarantee' part of the service has almost no monetary cost to the bank. The infrastructure consists of telephony or internet connectivity (that the retailer largely pays for), plus server hardware to process transactions efficiently. Everyone in the modern world uses Visa or MC, so banks aren't having to add new hardware when a new retailer pops up to use it. It is the retail equivalent of electricity, meaning that no serious retailer can entertain the notion of existing for long without it. So, when the bank consortium decides to raise the per-transaction rate a penny, it is pure profit, and who can stop them? I'm not saying I want the government to get in the way, but if they don't, who can stop the banks from charging whatever they want? How does a free market regulate this monopolistic behavior?
It's nice to point out debatorily that a monopoly is not a free market, but when a monopoly establishes itself, like it has in the banking industry with debit/credit transactions, how does the market combat it? Retailers can sign a pledge to stop using Visa, but that sounds like suicide, because all it takes is one 'competing' retailer to ignore it and take advantage, and all that happens is strife and death amongst retailers, while the banking monopoly is unaffected.
dw

[DukkhaWaynhim]

And since banks are so big, what happens when you card-swipe your Visa at a retailer who is using the commercial side of your bank? If Chase happens to be my bank and my retailer's bank, isn't Chase making free money on both ends of the transaction, negotiating a transaction with itself? Does it reduce or ignore the merchant processing fee in this case? I doubt it.... Pure profit for Chase in this circumstance... Sweet for them, I guess.

dw

[Zarathustra]

As predicted ....

Debit-Fee Cap Has Nasty Side Effect .

By ROBIN SIDEL

Jason Scherr had a lot on his mind the day after he opened his fifth Think Coffee shop in Manhattan last week. The fan was blowing too hard, the classical music was playing a little too loudly—and he was trying to figure out how to get more customers to pay with cash.

A new law that was supposed to reduce costs for merchants that accept debit cards has instead sent Mr. Scherr's monthly processing bills much higher and forced him to reassess the way he does business.

"My choice is to raise prices, discount for cash or get an ATM," says Mr. Scherr, a lawyer who has been in the coffee-shop business for more than a decade.

Just two months after one of the most controversial parts of the Dodd-Frank financial-overhaul law was enacted, some merchants and consumers are starting to pay the price.

Many business owners who sell low-priced goods like coffee and candy bars now are paying higher rates—not lower—when their customers use debit cards for transactions that are less than roughly $10.

That is because credit-card companies used to give merchants discounts on debit-card fees they pay on small transactions. But the Dodd-Frank Act placed an overall cap on the fees, and the banking industry has responded by eliminating the discounts.

"There will be some unhappy parties, as there always is when the government gets in the way of the free-market system," says Chris McWilton, president of U.S. markets for MasterCard Inc. He said the company decided that it couldn't sustain the discounts under the new rate model because the old rates had essentially subsidized the small-ticket discounts.

Merchants now are trying to offset their higher rates by raising prices, encouraging customers to pay in cash or dropping card payments altogether.

Redbox, a unit of Coinstar Inc. that rents movies through vending machines, says it is raising prices by 20% to $1.20 a movie starting next month due to higher costs, including debit-card fees. The company declined to specify how much of the increase was due to higher fees.

Dairy Queen recently told owners of its food franchises to consider offering discounts or incentives to steer customers away from debit cards. The company suggested that franchisees install small placards that say "due to the rising cost of payment card acceptance, we kindly ask you to pay with cash—especially for purchases under $10," according to a three-page memo that was reviewed by The Wall Street Journal.

A spokesman for American Dairy Queen Corp. in Minneapolis declined to comment on the memo.

The development is a consequence of last year's Dodd-Frank law that included a cap on merchant debit-card fees, known as interchange. The Federal Reserve capped merchant debit card fees at 21 cents per transaction—plus the potential of a few cents more to cover fraud costs—starting Oct. 1, down from an average 44 cents.

The debit-card part of the law has been a particularly prickly issue. Banks fought the new cap, which they say will cost the industry more than $6 billion a year. Banks recently tried to make up some of those anticipated losses by charging consumers for debit cards, but they quickly abandoned that plan due to customer outrage.

Visa Inc. and MasterCard responded to the law by eliminating the small-transaction discounts. The card networks had offered those merchant discounts to encourage greater use of debit cards for small transactions. Visa and MasterCard set interchange fees, which are collected by the card-issuing banks. Visa and MasterCard get money each time a card is swiped.

Merchants lobbied hard for a cap on debit-card fees, saying they would reduce prices if their costs fell. Instead, many say that the companies that process their debit-card transactions aren't passing on the federally mandated savings, or are raising fees on other services.

Sen. Richard Durbin (D., Ill.), who initiated the push to overhaul debit-card fees, declined through a spokesman to comment on the consequences of the law. Sen. Durbin was so influential in the measure that it is now widely referred to as "the Durbin amendment."

Jim English, who works with a group of 17 vending-machine operators, says that their interchange fees have jumped from roughly six or seven cents a transaction to the federally regulated 21 cents. About 150,000 U.S. vending machines accept credit and debit cards.

"Overnight, the variable costs of a transaction have tripled," says Mr. English, who runs a marketing company that devises payment programs for vending machines. Some machine operators will raise prices and offer 25-cent discounts for cash starting in January, he says.

USA Technologies Inc., which provides payment systems for vending machines and other self-service kiosks, has stopped accepting MasterCard debit cards as a result of the law. The company says it negotiated its own deal with Visa that is lower than the rate it was paying before the new law.

Mr. Scherr, the coffee shop owner, says that debit-card fees at one of his five stores rose to about 4.5% of sales from 3.5% of sales in the month after the new law took effect. "It's a killer for me," says Mr. Scherr, who estimates that 95% of his sales are under $15.

In the meantime, Mr. Scherr is weighing whether the expense of an ATM would justify its installation. If he gets one, he says he plans to "stick a sign on top of it, calling it a 'Durbin ATM.'"

Wall Street Journal Link

Jesus, this was so predictable. Just read through this thread, search for my posts, and you'll see it all there. Just another example of when the government meddles in the free market--ostensibly to help people--it ends up hurting the very people it tried to help. I'm not an economic genius. How did I know this stuff was going to happen? Because it's utterly predictable to anyone with the bare minimum knowledge of how supply and demand works. We've got to eliminate emotion and outrage from our economic thinking, and get back to the basics. The people who wrote and supported this law should have known better. It wasn't that difficult to foresee the outcome of this law.

This was supposed to "stick it to the banks," which--due to rampant emotion and outrage as represented by groups like OWS--is a popular sentiment lately. But this didn't stick anything to the banks. This was simply a windfall for Big Business, and ended up hurting small businesses and consumers by raising prices and limiting choices.

We've got to be smarter, people. "Sticking it to" entities which we don't like can't be the motivation for sociey-altering legislation with unexamined, unintentional consequences.

[SoulBiter]

Yep... too often the govt has tried to meddle in business and instead of fixing a problem they make things worse. Why not instead let people fix things themselves? Like recently BoA decided to start charging a fee for just having a debit card.. so people left in waves for credit unions. BoA decided to drop the fee.

People need to empower themselves to vote with their money.. vote with their feet and walk away when there are alternatives. Example: If you don't like the practices of Walmart..quit shopping there. But don't continue to shop there and demand that the govt make them buy their goods in America.

[aliantha]

What's interesting to me is that Z didn't highlight *this* paragraph:

Merchants lobbied hard for a cap on debit-card fees, saying they would reduce prices if their costs fell. Instead, many say that the companies that process their debit-card transactions aren't passing on the federally mandated savings, or are raising fees on other services.

In other words, instead of the banks accepting lower revenues -- which was the intention of the Durbin amendment -- they're raising *other* fees. Making a smaller profit wasn't even an option for them. And isn't it funny how they're targeting the retailers who pushed for the law?

Personally, I rarely carry cash any more, and so I tend to skip businesses that don't take plastic. In light of this, tho, I might have to reevaluate that practice.

[Zarathustra]

What's interesting to me is that Z didn't highlight *this* paragraph:

Merchants lobbied hard for a cap on debit-card fees, saying they would reduce prices if their costs fell. Instead, many say that the companies that process their debit-card transactions aren't passing on the federally mandated savings, or are raising fees on other services.

The more I highlight, the less those highlights draw attention to what I'd like to emphasize. There's nothing "interesting" in my decision to not highlight that particular paragraph.

If you remember, it was a point I made myself:

But goods and services aren't going to suddenly be cheaper because of this. Debit cards aren't going to go away. We'll just pay for them in a different way. Meanwhile, businesses will most likely keep their prices the same.

...

This is all about giving the retailers--Big Business--a billion(s) dollar break. Do you think we'll see a penny of those savings?

In other words, instead of the banks accepting lower revenues -- which was the intention of the Durbin amendment -- they're raising *other* fees. Making a smaller profit wasn't even an option for them.

Of course it wasn't an option! Anyone who thought the banks would be hurt by this were extremely naive. Why would they voluntarily give up revenues when they can do something about it? If you think you can force someone to lose money with a law, when all they have to do is raise fees somewhere else, it doesn't take a genius to guess what they'll do.

This is about the government forcing the banks into a position where they will simply pass their loss of revenue on to us, and hurt those who can least afford it in the process.
...
What I said was that in the process of recouping their losses (imposed by the government), the consumers will be hurt, by the banks.
...
I actually agree with you that it's unlikely that they will lose much profit in the long run--but that's not because the law has insignificant consequences, but rather because they'll make up the money in other ways ...ways that will hurt consumers.

And isn't it funny how they're targeting the retailers who pushed for the law?

Funny? You say this as if it's not exactly what I predicted, which you argued against!

But I don't really think the deal will work out for retailers, either ...

Putting a cap on how much banks can charge is pointless if banks simply put a corresponding cap on how much you can spend with card. It doesn't save the retailer any money to have smaller fees if people are forced to spend less with the card. Squeeze a balloon and it just gets bigger somewhere else.

Okay, the banks haven't put a cap on how much you can spend with a debit card (yet)--they've instead simply done away with the discount given to retailers when customers make smaller purchases--but the effect (to the retailer) is the same: higher usage fees (to the retailer) relative to consumer purchases.

Personally, I rarely carry cash any more, and so I tend to skip businesses that don't take plastic. In light of this, tho, I might have to reevaluate that practice.

And that's a shame, right? You'll have to carry more cash, which can be stolen, which you'll have to pay a fee to withdraw from an ATM, which you'll have to track down or just hope the business has one on site.

But we the consumers will pay the price in limited choices, more fees ...

Why don't we just change the law, instead of resigning ourselves to limiting our own choices, altering our own behavior, because of the unintended consequences of a stupid law?

[SoulBiter]

Personally, I rarely carry cash any more, and so I tend to skip businesses that don't take plastic. In light of this, tho, I might have to reevaluate that practice.

And that's a shame, right? You'll have to carry more cash, which can be stolen, which you'll have to pay a fee to withdraw from an ATM, which you'll have to track down or just hope the business has one on site.

I like using cash instead of credit or debit. Although I do still use my debit card some (like for paying for gas at the pump). But other than that, I went back to the envelope system that my grandparents used. I budget a certain amount of cash (plus spending money) and I take that amount out of the bank each week, then put cash in those envelopes that represent my bills and spending money. When the cash is gone, I have nothing left to spend so there is no way I will overspend on groceries, etc etc etc.

However I do agree that it puts me in the position of being stolen from and having no recourse.

Except this:

[Holsety]

The development is a consequence of last year's Dodd-Frank law that included a cap on merchant debit-card fees, known as interchange.

Interchange!? You must mean that agency from Jack Vance's The Demon Princes series that ransoms hostages in a reliable manner to those seeking to buy them back!?

No? You don't mean that?

Awww....

[aliantha]

Don't hurt yer head, there, Z. You were right, okay?

It's not that I'm surprised. Pretty much nothing the banks do would surprise me at this point....

[Farsailer]

Paying for things with cash... gawd, what a fresh new concept!

[Avatar]

I use my debit card a lot. For most things actually, since most things these days cost more than I carry with me. That said, I still don't like to be without cash either. Always carry some cash on me. Makes me feel safer.

--A

[Holsety]

I carry cash and card. I need to use both at times for public transit because the machines sometimes refuse one or the other haphazardly.