Your debit card may soon be denied for purchases greater than $100 — or even as little as $50.
JPMorgan Chase, one of the nation’s largest banks, is considering capping debit card transactions at $50 or $100, according to a source with knowledge of the proposal.
Why? Because of interchange fees.
Right now, every time you swipe your debit card, your bank charges the retailer an average of 44 cents, which it shares with its partners. Those fees, however, add up to about $16 billion per year, according to 2009 data from the Federal Reserve.
But as part of the Wall Street reform passed last year, these fees are being slashed. The Fed is proposing rules that would cap interchange fees at 12 cents, starting in July.
That could cost Chase more than $1 billion a year. And Chase may not be alone. Other major issuers are also projecting huge losses from the interchange fee cap.
Joe Price, president of consumer banking for Bank of America, said in an e-mailed statement that the lower fee wouldn’t fairly compensate the bank for the infrastructure and services it provides to retailers.
And consumers would feel the pain when Bank of America is forced to recoup the difference by “increasing the cost of their everyday debit card transactions, limiting their payment choices and impacting industry innovation,” according to the e-mail.
Aside from considering a limit on transaction amounts, Chase is testing $3 monthly fees on debit cards and $15 fees on checking accounts in certain states. Additionally, the bank announced in November that it has stopped issuing debit rewards cards.
A Chase spokesman declined comment on this story.
The revenue banks get from interchange fees helps offset money lost from fraudulent transactions. So banks argue they won’t have the money to protect themselves against fraud with the Fed’s proposed cap in place.
“If banks cannot recapture their fraud-prevention costs, it is likely that a lower percentage of transactions at the point of sale would be approved,” Price said. “If the final rules that are issued in April look like the draft, there’s no question that it will impact how we and other issuers price deposit and payment services and what features and benefits are included.”
But a Bank of America spokesman declined to comment on whether the bank would cap debit card purchases at $50 or $100.
Representatives from Wells Fargo and HSBC declined to comment on their plans, while a spokeswoman from Citi said the bank isn’t making any changes at this time.
If a cap does make its way into accounts, consumers would be forced to write checks, withdraw cash from ATMs or put their spending on credit cards.
“The whole model on the debit card side is in flux because of Dodd-Frank,” said Brian Riley, senior research director at financial services consulting firm TowerGroup. “The unfortunate thing is that the people who will really get hurt on this are the people who need the most help.”
Many consumers with bad credit can’t qualify for credit cards — and when they do, it’s often with hefty rates and fees. Additionally, ATMs typically dole out only a limited amount of money at a time and checking accounts are being loaded with fees.