Debit Fee Cuts Could Boost Credit Card Use -- Fed

September 26, 2011
American Banker 
overdraft news

According to a Federal Reserve Bank of Boston research paper, new regulations reducing debit card interchange fees are causing some banks to charge customers more for using debit cards -- which, in turn, could result in customers ramping up use of their credit cards. While explicit debit card fees have not been the norm, Boston Fed policy adviser Joanna Stavins said it is "feasible" that banks will begin to add fees or per-transaction charges in an effort to recoup lost interchange revenue. The Fed's July 29 ruling will limit the fees that merchants pay to banks when customers make a purchase with their debit cards. The fees will drop to between 21 cents and 24 cents per transaction, down from 44 cents on average currently. In an attempt to make up for losses in the field, some big banks have already begun to charge customers for checking accounts or related debit cards. However, the rise in debit card fees could cause more consumers to use their credit cards, as there will be no fee attached to that card. "It is reasonable to expect that an increase in the cost of debit would lead to an increase in the use of credit cards," Stavins concluded.
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