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Changing charges

Cap on swipe fees affecting some banks

October 16, 2011
The Leader Herald

The Leader-Herald

A new regulation went into effect this month curtailing the fees banks could charge merchants for every swipe of a credit or debit card.

Banks now are only allowed to charge 24 cents per swipe of a card, down from the average of about 44 cents. The regulation is laid out in the Durbin Amendment, which was part of the financial overhaul legislation passed by Congress and signed by President Barack Obama.

Article Photos

A motorist uses the ATM machine at Patriot Federal Bank in Johnstown on Thursday. President and CEO Gordon Coleman said this week the cap on debit-card swipe fees will have no significant effect on the bank and its customers. Patriot Federal has another branch in Canajoharie.

The Leader-Herald/Mike Zummo

It's the latest regulation imposed on banks. Some banks have come up with ways around the decrease in revenue, while others have passed new charges - including monthly debit-card fees - along to their customers to make up for the drop in swipe fees.

"Recently, a number of banks have announced new fees for bank services," said Frank Keating, president and chief executive officer of the American Bankers Association. "Make no mistake about it, these fees are the direct result of government price fixing that has fundamentally altered the economics of offering a debit card."

The regulations and their effect will vary among local banks.

Locally owned Patriot Federal Bank expects the new regulation to have a small effect on the bank.

"While the limits on 'swiping' fees will impact our bank to some extent, it will not have a major impact on our profitability," President and Chief Executive Officer Gordon Coleman said.

Coleman said the fees will have a much larger effect on the regional and national banks.

Officials from Norwich-based NBT Bank, which has branches throughout Fulton and Montgomery counties, could not be reached for comment.

Citizens Bank, which has branches in Johnstown and Broadalbin, made alterations to parts of its debit-card rewards programs, but the "functionality of the card" was unaffected, said spokeswoman Janice O'Keeffe.

O'Keeffe said no additional fees were added to the use of a debit card outside of the alterations to the rewards programs.

Bank of America, which has a branch in Johnstown, recently revealed that starting next year, the bank will charge customers $5 per month to use their debit card.

Bank officials said the fee only will apply when customers use their card for purchases in a certain month. The fee will not apply if the card is used to access ATM machines.

It will not apply for premium customers, who keep high balances.

Debit fees hit particularly hard because banks have spent the past decade encouraging their customers to go for the ease of the cards, which deduct purchases immediately from a checking or savings account.

In 1995, debit cards accounted for only 1 percent of the transactions when people pulled a card out of their wallet to pay for something. Credit cards made up the rest.

Debit cards grew steadily, hitting 50 percent in 2006. Today, there are more than 530 million of them in use in the U.S. Two out of every three times someone reaches for plastic, it's debit, according to the Nilson Report, which tracks the card industry.

Credit cards still make up 56 percent of the money spent, according to the report. So when people use debit, it's for the forgettable, smaller transactions of everyday life - a pack of gum or a cup of coffee.

Banks have cashed in big. They collect about $19 billion a year from swipe fees, the pennies they collect from a store every time you run your card through a magnetic reader at the checkout counter.

On Oct. 1, that revenue was cut almost in half as a result of the new regulations.

Last year, strict rules on credit cards limited when they could raise interest rates and virtually eliminated customer fees for going over credit limits. Then the Federal Reserve tightened rules for when and how often banks could charge for checking account overdrafts.

But each regulation aimed at reducing the costs for consumers has chipped away at bank revenue - and left banks going so far as to make the customer pay for services that had been offered at no charge.

Members of Congress are asking the Justice Department to investigate whether Bank of America and other major banks improperly worked together to charge customers new monthly fees for using their debit cards.

Rep. Peter Welch, D-Vt., and four other Democrats said they've asked Attorney General Eric Holder to open an investigation into possible collusion by the banks.

Welch said the lawmakers had no evidence of collusion. But he said the timing of the fees merit an investigation.

According to the American Banking Association, Bill Owens, D-Plattsburgh, who represents Hamilton County and parts of Fulton County, has sponsored a bill in the House of Representatives to repeal the Durbin Amendment.

Mike Zummo is the business editor. Information from The Associated Press was used in this report.



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