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Big Banks Say "Let's Bounce!" on Debit

Adam Rust's picture

Posted March 10, 2011

In the wake of the Durbin Amendment, some big banks are thinking about putting NSF fees on to debit cards.

NSF fees are not overdraft fees. Consumers can opt-in for overdraft protection right now. Consumers that do not will have their purchases declined. If they opt-out, they can't get an

overdraft on non-recurring debit card transactions or when they attempt to overdraw their account at an ATM. Even those that opt-out can get an overdraft in other instances. For example, there is no opt-out if a consumer's account is overdrawn for a automated monthly charge like the payment of a utility bill.

The difference now is that the big banks are ready to charge an NSF when they decline that purchase. At most banks, the NSF fee is the same as the overdraft fee. At RBC, the NSF is $35, but the overdraft fee is $41.

Durbin Amendment

The Durbin Amendment continues to roil the retail banking world. The bill forces banks to charge "reasonable fees" on interchange. The Federal Reserve has proposed to interpret that rule on the basis of actual costs.  The proposal would provide banks with as little as 7 center per transaction and no more than 12 cents. Right now, the banks get 44 cents. It is a big deal. One analyst estimated that the Durbin Amendment will cost the banks $15 billion per year.

The Durbin Amendment does not apply to card issuers with assets of less than $10 billion. GPRs are also excluded.

Big banks are fighting the rules. One "innovation" is a  fee to merchants for a guaranteed payment. This is an out-and-out gouge: merchants get that service for free right now.

Even so, banks could use this opportunity to innovate in a way that helped consumers. BB&T is one of the few large banks with its own prepaid GPR card. For the most part, the other big banks are using prepaid for gifting, for employer payments, or for other limited functions that fall outside of a full transaction account. Banks ought to have some level of service for LMI households. As they slowly price people out of what used to be called free checking,