Could a cap on debit card purchases be in the works?
Customers at Chase would only be able to make purchases of up to $50 or $100 per transaction on their debit cards under a very preliminary plan being considered by the bank.
The idea is one of many being floated internally in response to a proposed regulation that would sharply limit the fees banks collect from stores whenever customers swipe their debit cards. Chase estimates the proposal could slash its revenue by $1.3 billion a year.
The New York-based bank isn't alone. The industry says that debit card fees help underwrite the costs of providing consumers with free or low-cost checking accounts. By limiting the fees they collect from merchants, banks warn that they'll need to pass costs onto consumers.
There's no way to say for sure how much of that is posturing. But consumers have already seen numerous unwelcome changes in the past year.
Chase last month stopped allowing checking account customers to enroll in its debit rewards program and raised the minimum direct deposit amount to qualify for a monthly service fee waiver. It's also testing fees; a $3 monthly fee for debit cards in northern Wisconsin and a $15 monthly fee on basic checking accounts in Atlanta.
Bank of America and Citi meanwhile have tweaked the terms on their checking accounts, such as by hiking minimum balances or monthly fees. PNC Bank notified free checking customers this month that they will no longer earn reward points for debit card purchases. The Pittsburgh-based bank is also ending reimbursements for fees incurred at out-of-network ATMs.
Overall, the availability of free checking accounts with no strings attached shrank for the first time last year since 2003. Only 65 percent of checking accounts were free in 2010, down from 76 percent the previous year, according to Bankrate.com.
As for a cap on debit card purchases, analysts say it's unlikely any bank would risk alienating customers with such an extreme move. The bank would need to first undertake a massive education campaign to avoid sending angry customers fleeing to competitors, said Zilvinas Bareisis a senior banking analyst with Celent.
He also noted that banks have plenty of other options at their disposal to recoup costs, including the many changes customers have seen in the past year.
On the other hand, Bareisis said a cap on debit transactions could force customers to rely more heavily on their credit cards. That would benefit banks because credit cards are exempt from the proposed regulations.
Debit cards are nevertheless the most common way besides cash to make purchases, according to the Federal Reserve. That's why banks are so opposed to the Fed's proposal to limit debit card swipe fees. The banking industry says the proposal would slash the $16 billion a year it collects by as much as 90 percent. Banks also say the proposal doesn't factor in how those fees help underwrite their costs for covering fraud.
Bank of America, the country's biggest bank, declined to say whether it was considering a cap on debit card transactions. But the Charlotte, N.C.-based bank said in a statement that the proposed regulation would no doubt "impact how we and other issuers price deposit and payment services."