LOS ANGELES — Debit cards, a gleam in bankers’ eyes 30 years ago, have become the preferred method for people to tap their bank accounts, a free and easy alternative to paper checks, live tellers or cash machines.
U.S. shoppers used them 37 billion times last year, making them more popular than credit cards (19 billion transactions) and checks (18 billion), according to the payments newsletter Nilson Report.
But big changes are afoot that could make it much more expensive for consumers to use the cards. And with concern rising over data breaches, some privacy advocates are recommending that shoppers return to cash or use credit cards, which provide better protection against fraud losses.
For years, banks subsidized most debit-card holders by levying heavy fees on retailers and overdrawn consumers. Merchants paid a processing fee averaging 44 cents every time a shopper swiped a card. And careless cardholders at major banks typically got dinged $35 every time the bank covered an overdraft.
Last year the nation’s banks collected more than $50 billion from merchant fees and overdrafts, including checking and ATM balance-busters as well as debit-card transactions.
That’s likely to decline, thanks to new rules Congress mandated after the financial crisis. Starting next month, merchants will pay just 12 cents for debit processing, unless bank lobbyists persuade the Federal Reserve to tack on a surcharge for fraud prevention. Even then, the fee would probably not exceed 18 or 20 cents.
In addition, new rules that took effect last year prohibit banks from automatically charging consumers for debit-card and ATM overdraft protection on everyday transactions; instead, cardholders now must opt in.
The bottom line is that banks stand to lose more than $10 billion a year in merchant fees and more than $6 billion in overdraft fees. They’ll be looking to make it up somewhere — and it’s likely to be from the rank-and-file debit-card users, not just the sloppy ones.
Already, JPMorgan Chase & Co., Wells Fargo & Co. and many other banks are reducing or phasing out rewards programs that gave users cash back for using debit cards. Chase has been testing a monthly $3 fee for debit cards in some states, and Bank of America Corp. and Citigroup Inc. have added new fees to some checking accounts.
Most of the nation’s 7,534 banks and thrifts are testing or plan to test consumer reaction to new fees or limits on debit cards or the checking accounts to which they’re linked, said Richard Hunt, president of the Consumer Bankers Association.
