When it comes to the fight over the fees that merchants pay banks to allow customers to use debit cards, consumers are damned if the Federal Reserve does what it has proposed to do and they're damned if it doesn't.
I know it's very likely you have never even thought of this. And why would you? You're going about your business trying to manage your family life or hold onto your job or paying your bills. But since millions of people have become addicted to their debit cards, it's time to catch up on this controversy.
Here's the issue. When merchants or service providers accept a credit card, charge card or debit card, they have to pay what's called an interchange, or swipe, fee. These can average 2 percent to 3 percent for credit cards and 1 percent to 2 percent for debit cards each time a card is used to cover a transaction, according to the National Retail Federation.
For years, merchants have complained that the fees are excessive and drive up their prices, which they have to pass on to all customers. But retailers put up with them because they know consumers spend more when they use plastic, even their debit cards.
In what was billed as a pro-consumer move, Congress decided, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, to require the Federal Reserve to set standards to lower the fees. The law says swipe fees should be "reasonable and proportional to the cost incurred by the issuer."
Merchants were elated; bankers were not.
The Federal Reserve proposed capping the fees at 12 cents per transaction, more than 70 percent lower than the 2009 average. The Fed also said it would look at an adjustment to the interchange fees to reflect certain issuer costs associated with fraud prevention. The Fed's final ruling is due next month.
Large banks claim they will lose more than $12 billion in revenue if the Fed proposal becomes final. Over the last decade, debit card payments have grown more than any other form of electronic payment, increasing to 37.9 billion transactions in 2009, according to the Federal Reserve. In 2009, debit card interchange fees totaled more than $16 billion.
With so much money at stake, the financial services industry and the companies that process debit card payments are lobbying hard to get Congress to revisit the law and do away with the proposed cap, allowing them to continue charging what they want.
An ad campaign funded by the Electronic Payments Coalition, which includes credit unions, banks and payment card networks, is trying to win over consumers to their side. One print ad, with an empty brown wallet to catch your eye, reads: "A new regulation will make your debit card more expensive, less convenient, or disappear altogether.
What if we went back to using cash?
Giant retailers lobbied hard for this rule because they wanted you -- instead of them -- to foot the bill for using your debit card."
The ad carries the tag line, "Washington is helping you clean out your wallet."
Now, the fact is that retailers already pass along the interchange fees to consumers in the form of higher prices. And it's the debit card issuers who will make your cards more expensive or less convenient. To cover lost revenue from lower swipe fees, the financial institutions say they may have to impose annual fees for debit card users or raise fees for other banking services. Some may stop offering debit cards to customers.
The card issuers can threaten and follow through in increasing fees because they have successfully gotten you to think debit cards are so much better than using cash. In fact, some of you even believe using your debit card is the same as using cash. (By the way, it isn't.)
So it appears we can't win this fight. Even with lower swipe fees, there's no guarantee merchants will lower retail prices to reflect the break they will be getting from the cap.
I have a wild and wacky idea. What if we just went back to using cash? Better yet, let's all begin to negotiate more for a lower price on our purchases if we pay in cash.
Our rebellion against electronic payments would show merchants and financial institutions that we still have some economic power. We don't have to be damned whichever way this debit battle goes.
Write to Michelle Singletary via firstname.lastname@example.org. Comments and questions are welcome and may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.