Enter the Debit Card Fee


CNN reports that Wells Fargo will begin test-marketing a $3 monthly surcharge for debit card usage in Georgia, New Mexico, Nevada, and Oregon on October 14.  JPMorgan Chase is running a similar pilot program in Wisconsin.  According to a Wells-Fargo representative, the fee will be assessed automatically if you use your debit card during the month.  If you don’t use your debit card at all, the $3 monthly fee will automatically be waived.

So you’re going to have to pony up an extra three bucks a month to use your ATM card?  What’s up with that?

“We regularly review our pricing and take into account the needs of our customers, industry trends, the market competition, and our cost of doing business,” explained the Wells-Fargo spokeswoman.  She’s talking about the new Federal Reserve cap on the fees banks are allowed to charge retailers when debit card purchases are made.  The maximum fee was cut by more than 50%, from 44 cents to 21 cents per swipe.

CNN explains that banks resisted this move:

Before the new rules went into effect, financial institutions lobbied hard for the Federal Reserve to delay its decision — saying a cap on these so-called “swipe fees” would cost them billions of dollars and would only end up hurting consumers.

Even before the cap was put in place, banks started to look for ways to replace the lost revenue. Banks, including Wells Fargo, Chase and SunTrust eliminated their debit rewards programs, while other banks stopped offering free checking.

A poll cited by CNN reveals that 61% of bank customers say they will stop using their debit cards when the $3 monthly fee appears.  Let’s assume that number is a bit high, as people are understandably grouchy about the appearance of a new fee.  It nevertheless seems likely that a lot of people will move backward, and return to the days of writing checks at cash registers, which is a real hassle for everyone in line. 

This will, in turn, cause banks to think about raising those debit card fees to capture more revenue from a dwindling customer base, or begin offering “premium” accounts that cannibalize features and quality formerly associated with the free, or very cheap, “basic” accounts.  You know, the same things that happen every time price controls are imposed.

I would imagine times will be especially tough for discount clubs like Costco, most of whose customers rely on debit cards for purchases, as they don’t accept most credit cards.  So much for the Costco self-serve gas pump! 

One of the interesting lessons to be drawn from the debit card saga is how much less willingly people bear even modest costs when they become visible.  To some degree, we were all paying that 44 cent debit card transaction fee, but it was hidden from us.  No retailer wanted to suffer the competitive disadvantage of offering even a tiny $0.44 surcharge for debit card purchases, any more than they wanted to openly pass along the fees they pay to credit card companies… because you can bet the store down the street would have big “DEBIT OR CREDIT SAME AS CASH!” signs in the window.

That’s why Big Government hides so much of its funding in the weeds of production and distribution, where the average middle-class voter can’t see it.  Corporate taxes are the ultimate example: a huge cost passed directly along to the consumer, who mistakenly thinks some faceless fatcat in a boardroom is weeping as he writes a quarterly check to the IRS. 

Notice that Wells-Fargo and JPMorgan Chase are not simply shifting half of the 44-cent-per-swipe fee over to the customer.  Instead, it’s a flat three bucks per month, which works out to thirteen swipes at $0.23 a pop.  They’re gambling that debit card usage would be even more damaged if consumers dwelled on a small fee every time the card was used, rather than a much simpler and less painful three dollars to be paid at the end of the month… even though many card users will not make thirteen monthly purchases, while others will make more.

Far too many of the taxes and costs we face are hidden.  The debit card fee was a transaction between two business entities.  61% of poll respondents snarled that they’d rather stop using their debit cards than pick up half of that fee.  Imagine how they’d feel if all the hidden taxes they pay were dragged out into the sunlight, where they could be seen clearly at last.