JPMorgan Chase CEO Jamie Dimon claims that consumers should start paying for the privilege of using their debit cards, but the truth is that consumers have been paying a premium to use debit for years, argues public policy consultant Richard Eskow in a March 24 Huffington Post column. Eskow states that U.S. consumers pay $48 billion each year to use their debit cards, thanks to the increased prices retailers are forced to charge consumers to offset interchange fees charged by card-issuing banks. It’s a kind of “invisible tax” that big banks collect with no real costs or risk involved.
Debit card fees are getting carried away
The “invisible tax” Eskow speaks of amounts to a kind of sales tax of 1 percent to 2 percent on everything consumers buy with a debit card. This is a tax that hits consumers through higher prices at the register, as retailers must charge more to compensate for the interchange fees debit card-issuing banks charge retailers for accepting debit card payments. On average, retailers pay card-issuing banks 75 cents for every $100 consumers purchases. This amounts to a lot of money in the long run — and most consumers have no idea that it’s happening.
“You never got to vote on it, never heard a debate about it and may not have even known it existed before it came up in the debate over bank reform,” writes Eskow.
Interchange fees go straight to the same “too big to fail” banks that taxpayers have already fed with bailout dollars. As Eskow puts it, the debit card business is “an oligopoly-driven, secretive, usurious system that shafts American consumers along with the small businesses that are the engines of jobs and growth.” And big banks – which had 383 million Visa and 125 million MasterCard debit cards in consumer hands in 2010 – wouldn’t have it any other way.
More covert than credit card fees
Retailers use a number of tactics to encourage consumers to use credit cards rather than debit cards. Some charge an additional fee to use debit or automated card swipe systems may default to credit. Regardless, if consumers have the money to cover a purchase, they will typically use their debit cards, as it does not result in revolving debt with interest. The heightened risk of credit card default makes debit cards more of a popular item with banks than credit cards, too. The public doesn’t deal with interchange fees up front, so the concept is rarely discussed.
Dodd-Frank and the $5 ATM fee
The Dodd-Frank Wall Street Reform Act bears a provision by Democratic Sen. Dick Durbin of Illinois that limits the interchange fees banks can charge retailers. As banks have projected this will cause them to lose $14 billion in revenue (less than the $20 billion the industry gives out in annual executive bonuses), major players like JPMorgan Chase are contemplating $5 non-customer ATM use fees. Don’t be surprised if the money-making idea catches on like financial wildfire across the banking industry.