Banks Formulate Plans to Cover Debit Card Losses - Other News

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Credit Card Applications » News » Other » Banks Formulate Plans to Cover Debit Card Losses

Banks Formulate Plans to Cover Debit Card Losses

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Banks Formulate Plans to Cover Debit Card Losses

Wells Fargo and Regions Bank are hoping that reforms required by the Durbin Amendment are postponed. The new rules, scheduled to go into effect on July 21, put harsh limitations on the amount banks can charge merchants for debit card transactions.

Banks are hoping for a reprieve from the Senate to delay implementation until the end of 2012 or beyond. Meanwhile, the banks are devising ways to recoup the millions of dollars in revenue that they will lose from the implementation of the new law. Possible changes include raising minimum checking account balances, introducing debit card carrying fees and adding new surcharges to checking accounts. Wells Fargo estimates it will lose $325 million in quarterly revenue from the proposed changes. The smaller Regions Bank reported debit card income of $346 million in 2010.

A Boon for Merchants

The purpose of the Durbin Amendment is to reduce the fees that merchants pay for processing debit card transactions. Since banks will have a cap on the fees they can charge merchants of 12 cents per transaction rather than the current 1%, it is a move that will save merchants hundreds of millions of dollars. For small debit purchases, banks will not feel the burn. For large amounts, however, it will really put a dent in the revenues the banks generate.

To compensate for the losses, Wells Fargo is considering instituting a new processing fee for merchants that would not come under the auspices of the Durbin Amendment. This too would offset the loss of revenues to the banks, but would circumvent the fee-cutting law in the process.

Change in Business Model

Regions officials say they are reviewing their overall business model. It will require all areas of the bank and each department to conduct a thorough review of how they are doing business, the cost of doing business and the fees the bank is charging for its services. These assessments are what will ultimately lead to fee structure changes, such as minimum account balances, surcharges to accounts and fees for having and using a debit card. All of these fees will land on the shoulders of consumers.

For now, banks are lobbying to delay the law until more research and studies can be done that reveal the true effects on the banks, consumers and merchants.

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