Credit.com’s Consumer Guide to the Proposed Debit Interchange Rule

What does this mean for consumers?

Lower prices. Retailers insist that limiting debit card fees will result in lower prices at the cash register, but some critics are skeptical. That effect has not been demonstrated in other countries (like England and Australia) where interchange fees have been regulated.
Good-bye rewards. It is almost certain that if the proposal passes in its current form, debit card reward programs will be curtailed or eliminated altogether. These programs typically reward cardholders for signature-based (non-PIN) debit purchases, which are more profitable to issuers.
Fees are coming. Issuers may begin to charge debit card fees, at least for less profitable customers. Annual fees or transaction fees could become more commonplace.
Adios, free checking. A loss in debit card income could continue to put pressure on banks to reduce or eliminate free checking accounts. Financial institutions have already lost significant income due to new restrictions on overdraft fees. This could be the nail in the coffin for free checking.
Incentives for certain types of payments. Thanks to other efforts (not part of this proposal), merchants are allowed to offer discounts or incentives for consumers to pay with different types of cards. So consumers may see promotions for lower-cost payment methods.

Exceptions

Financial institutions with less than $10 million in revenue are exempt from these rules. However, it is uncertain whether these issuers will benefit from that exception as there is no mandate for networks to establish different fee schedules for smaller issuers.

In addition, prepaid cards are exempt from some of the rule, so there is speculation that banks may start issuing those cards more aggressively in lieu of debit cards.

The Final Word

The Board will accept comments from the industry, consumers, or other interested parties for 60 days. The final rule will be issued April 21, 2011 and will go into effect June 21, 2011.

But will it stick? There is already talk of legislation to water down or reverse the Durbin amendment in the next Congress.