The end of debit card rewards may be right around the corner…
Last year was tough for the banking industry with new laws requiring that customers opt in — not out — if they wanted overdraft protection. This provision took a bite out of what had been a $35 billion profit center. In addition, Washington continues to look at lenders and banks for ways to help consumers, many of which have a negative impact on the industries’ bottom line.
As a result, the days of big rewards may be soon a thing of the past. But for consumers who hope to earn rewards for using their debit card the end may just around the corner. With the prospect of new legislation that would limit the amount banks can charge, lenders are looking at eliminating or offering smaller rewards for debit card use.
Why debit cards will cost lenders more
The Federal Reserve’s financial overhaul bill took a big bite out of the revenue that lenders made for over-the-limit and late payment infraction penalties and other fees. But one provision of the federal legislation specifically affects debit card purchases. That provision allows the Federal Reserve to establish limits on interchange fees collected for debit card purchases. Financial institutions will earn less when consumers opt to purchase with a debit card than they will for credit card purchases. The Fed is considering two options. One would base fees on each issuer’s costs and the other would set a cap of 12 cents per transaction.
Financial savvy consumers will find that getting the best rewards will mean setting aside the debit card and opting to use a credit card whenever they need to use plastic.
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