How Durbin Amendment Affects Consumers

The Durbin Amendment was put into play effective October 1, 2011. The amendment has limited the amount of money banks can charge merchants that process debit card transactions for purchases.

In the past, banks made a lot of money from these swipe fees but now with the new limitations, banks are losing a lot of their reliable profits. As a result, the customers of the big banking facilities are now incurring more costs for services that in the past have been free.

Consumer Consequences

Consumers are struggling with their financial obligations with the recession and the high rates of unemployment. Adding new and larger bank fees makes it nearly impossible for some to survive financially from one month to the next.

Banks are imposing fees for many things consumers are not accustomed to paying. There is still the deficiency in bank customers that regularly neglect to review bank statements and account disclosures which detail changes being made to banking services, including new or increased fees.

Without opening the mail, consumers are often in the dark about what they are actually paying for just to maintain a checking or savings account. Maintenance fees, transaction fees, and monthly debit card usage fees are growing more common and more expensive.

Avoiding Financial Mistakes in Banking

In order to avoid paying more than necessary, there are a few things consumers can do now to create a more stable financial future. These actions include:

Comparing offers of other banks – see what else is out there that better suits your banking needs at rates you can reasonably afford and transfer your accounts to a facility with better opportunities and more customer-friendly incentives.

Be diligent about recording transactions – even one overdraft on your account can incur a $40 or $50 charge so it pays to be consistent in recording transactions and helps to leave a cushion in your account to protect you from simple math mistakes.

Use cash – instead of forking over various transaction fees for using ATMs outside of your banking network, plan ahead with your budgeting to make free cash withdrawals from the teller that allow you to avoid electronic transactions and their subsequent fees altogether.

Make savings a priority – the only way to ensure you have financial stability is to pay yourself first. Most banks allow for automated deposits from your paycheck or other bank accounts at no additional charge. Make a commitment to put away some percentage of your income to build up an emergency fund that can help you avoid financial disasters such as bank overdrafts or unexpected expenses.

Read the fine print – stop throwing away your bank statements. Be sure to review each statement and piece of correspondence that comes from your bank. If you neglect to read all of the information you are being given by your bank, you are likely to miss out on important details concerning fees and other account changes. Make sure to also read the fine print that often contains the most important details.

Deal with bank concerns – if you are not happy with the changes that are taking place concerning your bank accounts, stop by the bank and speak to a supervisor or branch manager. While there is no guarantee they’ll be of assistance, pleading your case can make a difference if you have been a long-time customer in good standing. Some banks will be willing to waive certain fees or account requirements simply because you spoke up.

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Current debit card customers will not be affected by the changes. For now, these reward customers will still be able to continue to earn cash back, travel rewards as well as gift cards and gift certificates when they use their debit card for payment, among other things.

What is prompting the changes? Wells Fargo like other banks will soon need to replace revenue that they will be losing as a result of lower debit interchange fees. An interchange fee is the fee the bank charges the retailer when you use your debit card to pay for a purchase. The bank collects the fee and then shares the revenue with their partners including Visa and MasterCard.

According to data collected in 2009 from the Federal Reserve the average interchange fee collected from banks was 44 cents per transaction. While this number may seem small, the amount of revenue that is generated totals in the billions each year. Interchange fees are thought to currently generate approximately 16 billion dollars annually for the industry.

The revenue from interchange fees is more than likely about to take a severe hit, forcing banks to cut services and programs in order to save money. In December of last year the Feds proposed that the Interchange fee be capped at 12 cents per transaction. The rate change, if it passes, is scheduled to take place in July.

Meanwhile, Wells Fargo along with other banks are scrambling to find ways to cut expenses and make up for the revenue that they are about to lose. It appears that debit card rewards programs at Wells Fargo and other banks just may be seeing their demise.

Reference:

http://www.zacks.com/stock/news/50091/Wells+Fargo+Halts+Debit+Rewards

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In the past, consumers who used debit cards to make a purchase but didn’t have enough funds to cover the total amount were still approved for the charge at the time of purchase. However, after the purchase, an overdraft fee would be charged to the account. If more than one purchase was made on a given day, each subsequent purchase would result in an additional overdraft fee. About 60% of the bank’s overdraft fees were collected from debit card transactions. Bank of America is the nation’s largest debit card issuer.

Bank of America now states that effective in the summer of 2010, customers who do not have sufficient funds in their accounts for a purchase will have their card declined at the time of the sale. This decision comes to light as banks await the new federal ruling that will require them to get permission from accountholders before providing overdraft protection services on ATM withdrawals and debit card purchases. Bank of America customers who try to withdraw cash from an ATM without the appropriate funds are already being warned they may proceed with the transaction but will face a $35 overdraft fee for doing so.

The bank will continue to provide overdraft services for checking accounts and automated payments for a fee but made the decision based on the need for trust. Since the disruption in the banking industry has caused many consumers to distrust financial institutions, Bank of America hopes to win back trust from old and new customers. Executives of the company say a common theme heard from customers is they want the bank to let them know when they don’t have the money to spend.

Many consumers found themselves falling into deep debt after they racked up hundreds or thousands of dollars in overdraft fees making small, everyday purchases like a cup of coffee. The Federal Reserve finally stepped in and starting in July 2010, will require that all banks get account owners consent for overdraft fees before they can be charged. Most banks automatically enroll customers in the overdraft programs without approval so customers are not expecting the fees.

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Credit cards have traditionally offered rewards programs as an incentive for users. Those programs have been on the decline for the last several years. It should be no surprise that debit cards offering similar rewards programs have increased significantly in the last year. Banks are hoping to attract new business because they need the revenue. Recent regulations will change the way banks due business. Since they are no longer able to collect excessive fees for things like overdrafts, banks need a way to make up for these changes. Banks also have the added benefit based on how the debit card works. The cards are linked directly to a checking account so the bank has a good chance of successful cross-promotion of other goods including savings accounts and loans.

Generating revenue from the debit card incentive programs isn’t easy and it doesn’t come cheap. Most banks shell out up to $25 for reward program members each year when you factor in the costs of technology, advertising, and the cash rewards or other items of redemption. Similar credit card rewards programs cost more – on average $30 per member each year. But banks know they have to maintain consumer interest for the programs to work. Otherwise they risk having consumers go back to the traditional credit card. Debit cards reward programs are also a bit more limited than their credit card counterparts because it can be difficult to develop an intriguing rewards program based solely on the use of checking account funds.

What To Expect Now?
Most debit card rewards involved earning points for each dollar or two dollars spent. Now many banks are upping the ante and creating more credit card-like incentives for an annual fee. Enrolled members can potentially earn 3-4 points for each dollar spent. Points are redeemable for cash and other reward items depending on the bank. Consumers who use debit cards very frequently may be able to recoup the membership fee as well as earn additional incentives throughout the year. Many banks are allowing rewards points to be earned for simple, everyday banking procedures. Opening a new savings account can earn customers cash back or extra reward points.

Many banks are hooking up with retailers to offer special discounts or exclusive rewards. In the past, these retail affiliates were online based but now customers can also expect rewards and discounts at local locations and not just on a website. Expect community banks and local credit unions to also begin offering rewards based on checking accounts if you use your debit card actively and agree to direct deposit your pay to your bank account.

If you are a regular debit card user, it may be worth your while to check out what incentive programs mean to you. There may be special offers that you are not yet aware of and you could be missing out on those incentives. Check with your bank if you have a debit card and find out what you can be doing to earn more cash back and points simply for doing what you normally do.

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Here are the common tricks of the trade to get you to part with your money you should be avoiding:

Overdraft Charges on Debit Cards

While many consumers have cut back on credit card use, they still use debti cards for the convenience. However, this time around you can find yourself paying big for a little mistake. Overdraft charges on debit cards used to be hard to come by as the financial institution would reject a charge that put the account over the limit. Nowadays, companies will clear the transaction then charge up to $40 for the service in addition to the amount you overdrafted. Shoppers who are not aware of the overdraft can rack up a lot of additional debt in one shopping trip.

Gift Cards

This trick can hurt your gift recievers more than you which doesn’t make for a nice gift. If you plan to give gift cards, be sure you know the terms. Many gift cards now come with a multitude of fees for different reasons, including inactivity charges and transaction fees. These fees take away from the value of the gift card and many times the card holder is aware of the limitations and additional fees.

Extended Warranties

When you purchase electronics and the like, you will more than likely be aksed at the register to purchase an extended warranty. Shoppers may have the unfair advantage of not understanding what the regular warranty is and being questions while in a hurry may result in an extended warranty purchase that wasn’t necessary.

Fees To ReShelve

Some companies are now charging consumers a percentage simply to restock the item if it has been returned in anything other than a factory sealed package it came in. The restocking fees can range from 15-20% and is deducted from any refund you may be expecting.

Unsure on Returns

If you purchase a gift you are not entirely sure will fit or is needed, you might find it difficult to return the item. Some companies are getting much more strict about their return policy terms, especially online stores.

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Overdrafts and Fees
Banks are used to charging overdraft fees (also called Non-Sufficient Funds – NSF fees), they have been doing it for years.  But what is particularly bothersome about this is that the overdraft fees are very expensive.  In fact, they usually top $30.00.  Then, in addition to that retailers add on their own fees which can be as much as $25.00.  Also, a common practice is to try to re-submit the charge again by the retailer.  That results in another fee.  You can have charges of around $100 real quick in this scenario.

Also, banks have begun to offer automatic overdraft protection.  But what this does is prevents them from just rejecting the transaction, and instead allowing it so that they can charge the fees.

Lining Bank’s Coffers
This practice by banks has them raking in more in overdraft fees than they collect on credit card fees.  It has become a big profit center for them and there is nothing that you can do about it.  Most banks will not renegotiate these fees down.  They stand behind their written policies while you drown in a sea of charges that straps you financially.

Security Concerns
Another concern for debit card use is the inherent security risks involved.  This is because debit cards do not have the security protections that credit cards provide.  If you have unauthorized charges on your debit card, then you are out that money unless you can discover who used your card and retrieve the money through legal means.  And the chances of that happening are slim to none.

Consumers are using debit cards more frequently than credit cards these days, so the need to understand the risks and then avoid them is real and necessary.
The federal government is looking at enacting legislation that protects against the usurious nature of the banks practices.  Until then, it is more than likely that you will experience an event such as these on your accounts.  At least knowing the risks should help you be more vigilant with your accounts.

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It may not be big news that consumers have learned some valuable lessons from the recession, but it might be surprising at how quickly they have adjusted to economic conditions. 

New Savings Emphasis

The one driving factor towards higher savings is the fear of a lost job. This motivation is providing the fuel for the current savings rate, which economists see going up further in the coming months. And even though they are saving less than they were after the last major recession in 1982, it is a welcomed sign.

Consumers are reducing debt to make room for saving. This is good because even though the standard savings account does not offer much in terms of interest, it is better than allowing unsecured loans to eat up money month to month. Also, this is an important trend because homeowners are recognizing that because of the housing market, they are not going to be able to rely on rising property values as a source for loans in the near term.

Borrowing Changes

People are fed up with credit cards and are shedding their accounts in record numbers. Debit card usage is at all time high levels. Most consumers feel like they have been shut out of the credit market and are seeking different ways to obtain money for the things that they need. They are turning to credit unions in droves because they offer lower rates and a less restrictive attitude when it comes to loans, etc.

Also, the newest rage is peer-to-peer lending in which several Internet based companies become an arbiter between family and friends who decide to loan money to one another. This helps keep the process clear and understandable as well as helping to insure that the borrower repays any loans made.

Less Spending Attitudes

Even though spending is down and expenses are cut to the bone, that trend will change as the economy improves and consumers see more money in their pockets. That will help provide a recovery that is desperately needed by businesses that depend upon consumer cash.

In a matter of months, most consumers will look back on the economic recession with lamentable fondness. Here’s hoping however, that they will not soon forget the lessons learned.

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Here are 5 simple tips to keeping your finances straight and get the most out of your cash.

Write What You Spend – Many people are impacted by a visual and if you truly want to understand where your money is going or how you can get better at saving it, you should start tracking it. Commit to tracking your every penny for a solid month. Then sit with your spouse and analyze the results. Little notebooks can easily fit into your pocket or purse and cost some change at a dollar store. This will help give you a reality check on how to cut spending and how much you can start saving.

Avoid the Green-Eyed Monster – Society often tends to be obsesses with other people’s income, job titles, and other financial successes. Personally acknowledging the priorities in your own life and the successes you have already achieved can help reduce the need to “keep up with the Jones’” and allow to you be content with your own successes and not envious of others. Also remember that you can’t always judge a book by a fancy cover.

Observe Your Own Purchasing Habits – Any trip to the store should afford you the opportunity to observe your own spending habits as well as change your thinking about spending. If you are an impulse shopper, prepare yourself each time before entering the store and always bring a list of items you need, rather than fill your cart with wants. If you tend to hit the mall to deal with boredom or other life frustrations, opt to take a walk in the park to clear your head.

Transition from Credit to Debit – If you have a history of not being able to pay off your credit card balances each month, stop using credit and switch over to debit cards that withdrawn money directly from your bank account. Debit cards will not hold a balance over your head and you can only spend what you have or face the consequences of overdraft fees and other penalties.

Focus on Debt then Save – You’ll find it to be near impossible to start saving money when you still owe on debts.  Start by understanding how much you owe and make a plan to pay off the debt before concentrating on your plans for saving.

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