Thursday, March 10, 2011

Debit card spending limit? Banks consider a $50 cap

While this idea remains in design stage, it does illustrate a classic example of "cause and effect" within the political and financial worlds - which are increasingly one in the same today. Setting fees through regulation rather than market driven end-user demand always produces distortion and unintended consequences. Cap the price of key commodities below actual demand and it's inevitable that shortages appear. Set the transaction price below that determined by supply and demand, and the service is inevitable cut off. Call it a financial transaction shortage. Financial controls, right or wrong, have a tendency to restrict credit creation. The current contraction in credit within the US banking system is something the market controllers are trying desperately to avoid.

Declined! Your debit card may soon be denied for purchases greater than $100 -- or even as little as $50.

JPMorgan Chase, one of the nation's largest banks, is considering capping debit card transactions at either $50 or $100, according to a source with knowledge of the proposal.

Why? Because of a tricky thing called interchange fees.

Right now, every time you swipe your debit card, your bank charges the retailer an average fee of 44 cents, which it shares with its partners. Those little fees, however, add up to about $16 billion per year, according to 2009 data from the Federal Reserve.

But as part of the Wall Street reform legislation that was passed last year, these fees are being slashed. The Fed is currently proposing rules that would go into effect in July and would cap interchange fees at 12 cents.

Source: finance.yahoo.com

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