The Monkey On Their Back

As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed last year, the Federal Reserve was given the task of setting debit card fees. Fees have been averaging 44 cents per transaction. (That's why coffee shops and other small retail outlets ask that you purchase at least $5 with your debit card. They lose money if you buy less.) A study by the Fed (PDF) shows there were 15.6 billion transaction in 2003, 25 billion in 2006, and 37.9 billion in 2009, so we are talking billions of dollars in fees being collected every year. Consumers pay these fees because retailers pass that cost on to them. Back in December, the Fed's proposed rule was a cap of 12 cents per transaction. Yesterday, the Fed released the final rule capping the fee at "21 cents per transaction and 5 basis points multiplied by the value of the transaction". If I understand basis points correctly, a $100 debit card transaction will yield an additional 5 cents in the transaction fee.

So what does this mean for you or me? Basically not much when it comes to retail purchases. The exception may be the odd local place like Froyo Earth where you get a discount if you pay in cash. Other than that, don't expect to see price reductions. But do watch for ways that financial institutions will use to recoup their lost fees. Like addicts they are hooked on those billions and they'll do everything they can to keep pumping that junk into their arms.