Debit fees slashed?

Looks like MasterCard and Visa will be negatively impacted by the Federal Reserve’s proposed cuts on the amount these credit card companies can charge merchants for debit card transactions. Part of the proposed plan is to cap the so –called interchange fees that are charged merchants at 12 cents per transaction versus what was charged last year – 44 cents, which is a reduction of 73 percent. Interchange fees are the fees that the merchant bank pays a customers’ bank when the customer pays with a debit card. According to reports by Bloomberg and Reuters, the credit networks charge merchants an average of 1 percent of the purchase price.

The banks will not like this plan if it goes through. They would get a much lower fee than the .44 cents they are used to getting as part of processing transactions. Consumers on the other hand might also be negatively impacted. The cuts aimed at banks will almost certainly trickle down to consumers in the form of added fees or higher costs for using a debit card. The Fed will have to decide by April 21 of next year on whether or not to make this plan a done deal. If the plan goes through, the rule would go into effect in July of 2011.