Recouping Debit Swipe Fees

Published in CSP Daily News

First Tennessee Bank says new rule will erase $25 million from retailers

MEMPHIS, Tenn. -- Banks across the nation are starting to charge consumers for use of their debit cards as the October deadline nears limiting the amount debit-card issuers can charge retailers in interchange fees.

Shoppers for years have used debit cards like plastic checks that pay merchants directly from the consumer's checking account. New rules issued by regulators in Washington have cut the fees banks can charge merchants on those transactions. So banks are responding with higher fees aimed at consumers, according to a story in the Memphis Commercial Appeal.

Among the banks in Memphis alone:

  • First Tennessee will charge consumers a few cents on each debit-card transaction, up to a maximum of $3 per month, beginning Oct. 22.
  • Regions Bank will collect a debit fee of $4 a month for certain accounts, beginning in October.
  • SunTrust launched new account offerings in June, including Everyday Checking that charges customers $5 per month for debit-card use.
  • Wells Fargo announced it will test a $3 monthly fee for debit-card use for customers this fall in five states, as previously reported in CSP Daily News.

Many community banks, online banks and credit unions are hanging back and not charging fees, according to the report. But that could change, said Ed Sibbald, director of the Center for Financial Excellence at Georgia Southern University.

"The community banks are just keeping their powder dry to see what the big banks are going to do," Sibbald told the newspaper. "Quite frankly, the small banks are going to have to do the same thing."

In Memphis, bankers at market leader First Tennessee realized new regulations would wipe out $25 million in annual fees paid by merchants accepting its debit cards. The bank derived a sliding scale to recover about $5 million in the form of fees paid by consumers.

"We're taking a unique approach relative to what we've seen other banks do,” David Miller, First Tennessee executive vice president of consumer banking, told the newspaper. "This isn't a money-making step for us."

First Tennessee has enlisted an array of merchants and restaurants in a program that offers discounts for consumers paying with the bank's debit card.

While many banks have eliminated or reduced rewards on debit cards, First Tennessee is still recruiting merchants to the program.

"It helps the merchants, and for us to be able to go out and help merchants drive more business, it helps us in that sense," Miller said.

In recent months, many of the nation's biggest banks, including SunTrust, Wells Fargo and Bank of America, reworked their requirements for checking accounts. Many featured new fees or put up new hurdles for customers to receive waived fees. Some banks also dropped rewards programs for debit cards.

For example, Wells Fargo has terminated its debit-rewards program for existing cardholders, according to CNNMoney.

"We made this decision due to new regulations that limit the amount of money merchants pay financial institutions for processing debit card transactions," a Wells Fargo spokeswoman said. "The new cap doesn't cover all the costs associated with offering debit cards, including processing, administration and fraud."

Current customers will no longer earn points for debit card transaction starting in October.

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