In debit card wars, consumers are usually losers

by Editorial, San Francisco Chronicle

It’s hard to pick sides in the struggle between banks and retailers over debit-card fees. It seems that consumers are ending up on the short end no matter which side prevails.

Things were looking up for consumers a few months ago when the Federal Reserve limited the amount a bank can charge a merchant for a debit-card transaction to 24 cents, about twice what the government calculated as the financial institution’s actual processing cost. Until that new rule took effect, banks had been charging an average of 1.14 percent of each debit-card purchase – which worked out to about 44 cents per transaction.

So this was not about banks losing money; it was cutting into what Congress had decided were unjust profits. But the banking industry was not about to lose a lucrative profit center.

Bank of America moved quickly to propose a $5 monthly fee on its customers who use debit cards. Just as swiftly, a public revolt put a stop to that idea.

The latest salvo came last week from the retailers, who have alleged that bankers are continuing to gouge them – despite the new limits – by exploiting a provision that allows them to add the costs of updating equipment to the fees they charge merchants.

Retailers claim the extra charges are especially tough on small transactions – as much as doubling the processing fee to more than 20 cents on a $5 purchase.

We might be more sympathetic if more small retailers were actually accepting debit cards on $5 purchases or not charging 50 cents per transaction – or if we didn’t have the sneaking suspicion that if their lawsuit succeeds, the banks might try to resurrect plans for a monthly debit-card fee.