The recent bank regulations enacted under the Dodd-Frank Financial Reform bill has created a serious situation for the banks that issue debit cards to their checking account holders. Under the regulation, the fees charged to merchants by banks or credit card companies for debit card transactions must be reasonable and proportional to the cost of processing those transactions. In other words, the banks that issue debit cards will be forced to give up tens of billions of dollars in revenue. Unfortunately, it’s the consumer that bears the brunt of this so-called reform. The merchants will not be required to lower their prices, so the windfall will go right into merchant pockets. The consumer, the one to be protected, is now going to be charged more money and be more inconvenienced at the bank he is with.
The banks must figure out a way to replace lost income, so basically they will do several things. First, they will reduce the amount of low balance checking accounts on their books, basically closing these now unprofitable accounts. Second, they will require much higher account balances to be maintained by insisting that a consumer keep $1000, $2000 or more in a combination of accounts. Also, they will not be waiving monthly account fees even if they use the debit card multiple times each month. Finally, there is talk that many large banks will limit the amount that can be debited from a card in an individual transaction. The measures they are taking are designed to reduce losses, and raise revenue.
It is estimated that 60,000,000 people are currently not receiving financial services through a bank or credit union. That figure is going to rise dramatically over the next year. Recent Master Card and Visa studies show that over 69% of the transactions processed by these companies are debit card transactions, not credit card transactions. The trend is clear. People are shifting to debit cards in greater numbers, but they run the risk that their costs for banking will now raise dramatically, and that their inconvenience will soar.
Reloadable, or prepaid debit cards are now becoming a major force against this consumer onslaught. There are several major players in this industry, but in many cases the cost to obtain, maintain and use these prepaid cards is very high. Be aware of cards that carry very high monthly maintenance fees, have an upfront cost to buy them, and have high transaction fees. You will not find one card that is free. Free debit cards do not exist. However, if you don’t need to maintain a checking account, love online banking or bank by phone, have direct deposit from one or more sources, a prepaid debit card will be a major blessing to those who need it.