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U.S. Consumers: The Real Loser of the New Debit Card Interchange Rules

Fin - Daily Ticker - US

The Federal Reserve Board announced new debit card rules yesterday on how much banks can charge merchants for each debit card transactions, as mandated by the "Durbin Amendment" to the Dodd-Frank financial reform bill.

"[The Fed] backed away from a proposal to cap debit interchange fees at 12 cents per transaction, and instead caps these fees at 21 cents per transaction," down from the average 44 cents retailers now pay, reports Credit.com's personal finance expert Gerri Detweiler. "It's a big cut for issuers, but not as big as it would have been under the previous proposal which capped them at 12 cents per transaction. So neither the banks nor the merchants are probably claiming the big victory."

The new rules take effect on October 1 and could end up costing banks billions in lost revenue. Despite that haircut, Wall Street certainly saw this as a victory for the banks as "shares of card companies Visa Inc. and MasterCard Inc. surged after the Fed revealed the more generous cap," reports the Wall Street Journal.

The real losers of this new decision are American consumers, Detweiler tells The Daily Ticker's Aaron Task in the accompanying interview. As to how these new rules will affect your bottom line, here are some likely scenarios Detweiler discussed on Credit.com:

Lower prices at the cash register? Don't hold your breath.

Fewer debit card rewards? Likely. We've already seen some issuers drop or curtail debit rewards programs (Wells, SunTrust, Chase) and no doubt more will reevaluate them.

Fewer free checking accounts? Likely, but don't panic yet. Debit interchange income has been one of the drivers of free checking. May be harder to find unless you have a strong relationship with your bank or are considered a good customer.

Fewer debit card programs and more prepaid cards? Maybe. There is an exemption for specific types of prepaid cards, but restricted. Amex just issued a debit card that likely meets the criteria. Others may follow.

Fees for debit cards or debit transactions? Be on the alert. It's very possible that some issuers will start charging debit card fees, at least on less profitable accounts. They'll start slowly and if it works, they'll creep up. (Merchants may offer discounts for preferred payment methods, but under card company rules cannot charge surcharges. That has not changed.)

Incentives/perks that favor one payment method over another? Merchants are allowed to to encourage consumers to use preferred payment methods as long as they don't encourage one specific card issuer or brand over another. So you might see special deals - free shipping or gift wrapping, for say, a debit card purchase over a credit card purchase.