Debit Card Limits

[katiesue]

I thought this (http://money.cnn.com/2011/03/10/pf/debit_cards_limit/index.htm?hpt=T2) was interesting. If $50 or $100 limits are put on debit cards a lot of people are going to be very unhappy. I know a lot of people in an effort to get out of debt have cut up their cards and use debit exclusively.

With current gas prices if it was dropped to $50 you couldn't even fill up. At Costco you could just use a check but you couldn't get gas. And traveling would be impossible.

Personally I don't use my debit card for much more than Costco. I like using my credit card for the security. If someone steals it and runs it up I'm not out the cash till it all gets straightened out. And I get the bonuses for using it. I do pay it off monthly in full.

[LSPoorEeyorick]

Eek, we use our debit cards for so much. Groceries, especially. Though because we shop at 3 different stores (whee, budget) we probably don't hit the $50 mark per store.

Still, limits would be a huge pain. I'd rather pay a monthly fee than have limits on debit.

[innerSpaceman]

Would this be applied to the limit you can get at ATMs? I believe for most, that's $200 per day. How could they make that different for purchases only?

I'm sure people would balk at not being able to get $50 from their ATM.

[katiesue]

I think it's purchases only. I have different limits on my debit card for purchases and withdraws currently. The ATMs are bank owned, so it's not costing them more. Unless you use another banks ATM and they both charge you a fee.

[BarTopDancer]

So far my credit union hasn't changed their operating practices in response to any of the legislation.

I wonder if this would also include debit cards that are used as a credit card. Most of my transactions are using my ATM card as a MasterCard.

[Morrigoon]

What a huge pain. I only use my debit card. Thank god for credit unions... if WF tries to join Chase in this, I'll just drop them.

[Alex]

I have no knowledge of this specific proposal (for anybody who might wonder) so can't say how potentially real it might be (since all kinds of ideas are proposed all the time for evaluation).

But in general I think this statement of things would be fairly uncontroversial:

When an industry offers a new service as an alternative to an existing service primarily due to the profit of the new service, and then the profit of the new service is dramatically reduced compared to the profit of the old service, the industry is going to try to move customers back to the old service.

Debit cards were not created by banks for altruistic reasons. Congress has now eliminated (or reduced) many of the non-altruistic reasons they existed. So, it may be evil to one's view of things, but banks are then going to prefer people move back to credit cards (or secured credit cards, also not capped).

And having had many interactions with our risk groups I'm sometimes amazed that debit cards were ever allowed to exist in the first place.

[Alex]

And you're going to see a lot of changes.

Much of the free or cheap services offered by banks were essentially subsidized on this model:

We will charge high fees that are generally avoidable but will bring us lots of money from people who aren't good at managing their money. This actually makes poor and/or stupid people profitable so we'll offer deals to draw them in that are going to be really good for the people who are smart with their money.

Congress has essentially said (and I'm not saying they were wrong to do so): "It is wrong for you to be making your nut off the poor and/or stupid people so these new rules will prevent that."

But it does mean that the poor and/or stupid people will no longer be subsidizing the benefits to the smart and/or rich people.

That's why checking became free almost everywhere. Because free checking meant poor and/or stupid people who generated a lot of fees. The fact that smart people also got free checking was just a bonus. Get rid of the fees (as Congress recently did) and checking won't be free for much longer.

Also expect to see debit card reward programs to change dramatically in the next couple of years as the business model on those is maximizing card swipes and to the extent that an individual card swipe is no longer so profitable there is less reason to encourage it.

[Kevy Baby]

Wait: are you trying to say that banks want to make money?!? How greedy of them.

[JWBear]

Greed is as greed does.

[Alex]

I do want to be clear, I'm not saying congress was wrong to make these changes.

But even if these changes are the most morally correct thing ever done by our government it is irrational to expect businesses to provide exactly the same services when they're being forced to change the terms of those services.

That said, personally I support much of the new fee regulation, the sunshine parts of the regulation, but I think the interchange fee regulations are misguided. They don't do much directly for the consumer and mostly just shift the money from one set of corporations to another.

[Chernabog]

My understanding is that the banks were overcharging the places that took Mastercard/Visa, etc. on the debit cards to begin with. With the legislation, they'll still make huge profits, but not as huge as before.

How much does it actually cost for a transaction? A penny or less?

If forced to, I would rather pay a yearly fee than have a cap on my card. I almost never have more than $10 in my pocket (and usually, it's no cash at all in my pocket) But more likely, and as pain in the arse as it would be, I would stick my money in whatever bank or credit union DOESN'T charge the fee.

[Alex]

My understanding is that the banks were overcharging the places that took Mastercard/Visa, etc. on the debit cards to begin with.

First, there's the more philosophical question of whether it is possible for one side to overcharge the other for a service when both parties freely enter into the deal. There is no law requiring Target to accept Mastercard network debit or credit cards if they feel the terms of too burdensome (and that reason is a big part of why, for years, CostCo only accepted Discover, ARCO doesn't accept credit cards at their pumps, and many government programs and fees don't accept plastic of any sort).

But that was certainly the position of merchants that they were being overcharged. WalMart, years ago, won a lawsuit against Visa and Mastercard claiming they were colluding to keep interchange rates high.

With the legislation, they'll still make huge profits, but not as huge as before.

And banks don't deny that. What they say is that with the profits they'll now be making it no longer supports the complete suite of products they have been offering for the last 15 years or so (we tend to forget just how recent the phenomenon of small scale POS card use is, remember when it seemed like technological excess that you could now buy your $2.99 value meal at McDonald's using a card?).

And again, the philosophical question of what is "too much" profit so long as it is legally obtained.

How much does it actually cost for a transaction? A penny or less?

Probably less, in terms of the infrastructure. Probably more due to fraud losses and other secondary concerns. If you're capped at $0.12 per swipe, $0.11 of which is profit you have to have 909 fraud free swipes to counteract one dillweed who steals his ex-girlfriends debit card and buys $100 of booze.

I almost never have more than $10 in my pocket (and usually, it's no cash at all in my pocket)

And why don't you carry cash? You likely did 20 years ago. Because the fee structure created an environment that subsidized the creation of a system that allows you to use plastic almost everywhere you might want to spend money.

But more likely, and as pain in the arse as it would be, I would stick my money in whatever bank or credit union DOESN'T charge the fee.

Personally, I doubt you'll see caps like those mentioned in the article (though you already have caps, most people just never run into them). Or if you do they'll be risk based caps or transferrence of risk (difficult to do due to regulation but does it make sense that the bank has all of the fraud risk if you leave tell your online boyfriend what your card numbers are so he can buy a ticket to visit you) from the bank to the consumer, all of which will still make

But the real key here is that Congress has not told banks "You can only make X% profit when one of your customers uses a piece of plastic to make a purchase." Instead they've said "You can only make X% profit when one of your customers uses a piece of plastic to make a purchase and the word Debit appears on it; you can still make all the profit you want off of them if they use a nearly identical piece of plastic but it says Credit on it."

Even the laziest of capitalists will respond to that by saying "oh, well then I'd really prefer that my customers use the credit card." And in reality, for someone who can handle their money, if caps really were imposed that would be the way to avoid it. Use a credit card everywhere you currently use a debit card and then go home at the end of the day/week/month and pay it off in full.

[Morrigoon]

Wherein the government once again encourages people to get into debt.

[Kevy Baby]

I do want to be clear, I'm not saying congress was wrong to make these changes.And in case it wasn't obvious, MY post was sarcastic. I have no problem with companies making money, as long as it is not illegal, unethical, etc. Which is a whole other argument

How much does it actually cost for a transaction? A penny or less?

Probably less, in terms of the infrastructure. Probably more due to fraud losses and other secondary concerns. If you're capped at $0.12 per swipe, $0.11 of which is profit you have to have 909 fraud free swipes to counteract one dillweed who steals his ex-girlfriends debit card and buys $100 of booze.I have always been curious though: you frequently hear of the transactional charges the banks, VISA, Mastercharge, et. al. charge the merchants, but isn't there an advantage to the merchant of getting the money into his account sooner, with FAR less handling, and with lower risk? If a merchant is (for example) on an all credit/debit card basis (no cash or checks), he does not have to worry about taking cash and checks to the bank (time cost of delivery cash/checks to the bank, security risk of having cash on site, paperwork and additional handling involved with depositing checks, etc.) and does not have to worry about the risk of a bad check (I have virtually nil experience in retail, but I believe that the merchant is fully at risk for a bogus check - please correct me if I am wrong). While he does have to pay fees for the transaction, it is not as if the merchant is getting nothing in return for those fees: there are hard and soft-cost savings and advantages to the merchant for accepting plastic.

(BTW: I know that in reality a brick and mortar merchant cannot be all plastic.)

Wherein the government once again encourages people to get into debt.Is the government responsible for protecting people from their own stupidity?

[Kevy Baby]

One other thing: I know there are different costs for a merchant processing a credit charge vs. a debit charge (I believe one has higher fixed costs with lower percentage or something like that). However, I have a service station near me that offers a cash discount that the last time I looked was in the neighborhood of 14 cents per gallon.

What strikes me is that they will give you the "cash" discount if you use your debit card.

[BarTopDancer]

What strikes me is that they will give you the "cash" discount if you use your debit card.

The Shell station at 405 and Brookhurst used to do that. Now gas is 10cents less if you purchase a car wash starting at $6.99.

The ARCO by my place accepts Visa, MC and Discover (I think) with no fees. Same with the ARCO on Ball across from DL.

[katiesue]

Question on the getting rid of free checking accounts and such. If I already have a "free" account at Bank X - can they just one day start charging for it?

[Morrigoon]

Kevy: No, but they are responsible, to some extent, for the economy. And since we accept as fact that there are a large number of stupid people in this country, large enough to affect the economy should they all go down at once in a big credit mess, then they would be wise to avoid policies that shove people in the direction of bad debt acquisition.

[Ghoulish Delight]

The "cash discount" at gas stations ticks me off because it's a total end-around the law. In the late 80s they made it illegal to charge a fee for a credit card transaction. All the "cash discount it" is a rebranding of the old "credit charge". It's functionally identical. If I recall correctly, some gas stations even tried it at the time the law passed and they were made to stop. I guess it's been long enough that no one remembers.

[BarTopDancer]

It's illegal to charge for credit (and I think it's against Visa and MC TOS to require minimum purchase) but they can charge for debit?

[RStar]

The Shell station at 405 and Brookhurst used to do that. Now gas is 10cents less if you purchase a car wash starting at $6.99.

The ARCO by my place accepts Visa, MC and Discover (I think) with no fees. Same with the ARCO on Ball across from DL.

Really? I thought all ARCO stations, as a corporation, charged the 45 cent fee. I have never been to one that doesn't. And in fact, I will only go there if I have cash because that fee ticks me off. To charge me to do buisness with them just means I'll go elsewhere.

I found out a couple of years back that my ATM card had a per day spending limit that I was unaware of. It was $1,000 a day. I never had the chance to spend that much in one day, until I tried to buy some furniture with the card. I called the bank (a credit union) and they raised it to $5,000. Now, if they contact me that they have dropped it from $5,000 to $50, I'm going through the roof! I can't go to the grocery store for under $100 most of the time!

I get the feeling this is one of those non-issues that some one brings up that will never come to fruition anyway....

[Alex]

Question on the getting rid of free checking accounts and such. If I already have a "free" account at Bank X - can they just one day start charging for it?

Not without telling you first. But they can say "these'll be your new terms as of X date. If you don't like them, feel free to take your business elsewhere." That's what those occasional letters/booklets you get in the mail are doing if you read the details, telling you the myriad ways they're tweaking the terms of their deals and telling you to pound sand elsewhere if you don't like it.

The ARCO by my place accepts Visa, MC and Discover (I think) with no fees. Same with the ARCO on Ball across from DL.

I've never been to an ARCO that takes any type of credit card at the pump. Just debit cards (with a transaction fee). But maybe it isn't universal like I thought.

In the late 80s they made it illegal to charge a fee for a credit card transaction.

Just for clarity, this is a state law and while it is the law in California it is not the law in all states and generally applies only to credit cards and not debit cards (as is the case in California). And, of course, even if there is no difference between cash and credit/debit prices you still end up paying that fee since it will be built into the price (that is what I meant about the cap mostly moving money from one corporation to another; if WalMart pays $0.30 cents less per swipe in interchange fee, how much of that will they pass to the customer in lower prices).

Minimum purchase requirements for using a card are technically violations of the merchants service agreement with Visa/Mastercard but I understand why they do it so am not one of those people who complains about it.

[Alex]

but they can charge for debit?

Yes. The state legislature passed a bill a couple years ago that would have barred it for credit cards as well but Schwarzenegger vetoed it. So far as know it did not come up again because the federal cap will most likely avoid the issue.

Schwarzenegger's stated logic was the eliminating the fee would simply transfer payment of the interchange fee from consumers who used a card thus causing the fee to spreading it among all consumers so those who used cash would be subsidizing those who don't.

[BarTopDancer]

Really? I thought all ARCO stations, as a corporation, charged the 45 cent fee. I have never been to one that doesn't. And in fact, I will only go there if I have cash because that fee ticks me off. To charge me to do buisness with them just means I'll go elsewhere.

I've never been to an ARCO that takes any type of credit card at the pump. Just debit cards (with a transaction fee). But maybe it isn't universal like I thought.

The first one I noticed it at was the one by DL. When moved here 4+ years ago I noticed it at the Arco by my place. Last weekend we stopped at an Arco on the way out of Vegas (by the new M) that had signs posted 'cash or credit only, no debit. All cards will be processed as credit'. The one thing I noticed about the three that I've come across is they are all newer style pumps. The Arco by my parents (in HB) or my office (Anaheim and Fullerton) do not take credit.

[Cynthia]

I use cash at the pump, have a Credit Union and use Discover allot . . . wonder what I will have to change.