New Debit Card Fee Cap Takes Effect in October

Younger consumers who are used to paying for 99-cent smartphone apps with their credit cards generally see nothing wrong with pulling out plastic for small retail purchases at places such as coffee shops and restaurants--the heart of Main Street small businesses in the United States. And a new consumer study suggests these credit- and debit-card users also may be more willing to buy and eat treats and snack foods impulsively, which can lead to bigger profits for merchants and restaurateurs as well as bulkier waistlines for their customers.

Up to now, the consumer demand for greater acceptance of debit cards for small retail and food purchases has been tempered somewhat by mom-and-pop merchants who discourage or prohibit the use of plastic for certain purchases because they long have believed the swipe fees banks charge them for processing credit and debit cards cut too deeply in their small profit margins.

But coffee shop economics may be in for a period of change starting in October 2011, when a new limit on the swipe fees card-issuing banks can charge retailers when they use a debit card takes effect. Last year, Congress passed a law that attempts to reshape the relationships among banks, retailers and consumers. In response, the Federal Reserve board this summer set a new cap on the fees banks can charge retailers when they accept debit cards. While some merchants argue the new d ebit swipe fee is still too steep, the cap cuts in half the approximate 44 cents per transaction banks currently charge retailers when a consumer uses a debit card.

Government regulators say they will be watching closely what effect this cap has on the behavior of debit card issuers, merchants, consumers and Main Street economics, leaving open the option to adjust the new policy in the future.

Meanwhile, technology may change the game as secure mobile transactions using a smartphone to access a bank account or line of credit become available to consumers at the coffee counter.

Follow @CreditDonkey or write to Annette O'Connor at annette@creditdonkey.com

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