Congress Considering Bills to Reform Bank Fees and Save Consumers Money

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There's a lot of talk lately over banking policies, rising fees and interest rates. The House Financial Services Committee is holding hearings and reviewing a number of proposed bills that involve further controlling the credit card industry.  Everything is on the table, from regulating overdraft fees to reforming credit and debit card swipe fees to creating a Consumer Financial Protection Agency whose purpose would be to protect consumers and their financial interests from predatory practices--and the financial industry doesn't like any of it one bit. They prefer to keep things the same -trouble is, isn't that why our economy is in such bad shape to begin with?

Many of the proposed bills can be pretty confusing for consumers to understand.  Here's a simplified version of the issues.

Overdraft fees

Senate and House bills, S. 1799 and  H.R. 1456 are aimed at regulating bank overdraft fees and cover ATM and debit-card transactions as well as checks. Banks are projected to drain as much as $38.5 billion from consumers this year by charging so-called overdraft fees. Senator Dodd's bill, S. 1799, would put a stop to this in a big way, by allowing banks to charge only one fee per month and six fees per year. You might say, just don't over draw and you won't be charged anything. It's not always that simple. There are several ways you can wind up paying overdraft fees without knowing. See earlier blog.

Interchange "swipe" fees

H.R. 2382, the Credit Card Interchange Act of 2009.  The bill would require credit card companies to disclose interchange rates, terms and conditions, prohibit any practices that violate consumer protection or anti-competition laws, allow merchants to give cash discounts, set minimum credit card purchase amounts, and choose which credit cards to accept--all things that would currently bring about hefty fines against store owners.
Lately the question of "swipe" fee regulation may have been shifted to the back burner. The Columbia Journalism Review and other outlets have been reporting that interchange fee legislation seems to have stalled.

Still, major organizations like The National Retail Federation (NRF), National Grocers Association, National Restaurant Association, and advocacy groups such as Americans for Financial Reform have come out in favor of reforming credit card interchange fees.

Americans for Financial Reform, a group of about 200 national and state organizations, recently announced its support for legislative action that would bring transparency and fairness to what they refer to as a broken system--particularly hidden "swipe fees" (interchange fees) "paid by all Americans, regardless of whether they use credit, debit, checks or cash."

In support of swipe fee reform they point out that "Swipe fees have grown at a staggering pace from about $16 billion in 2001 to about $48 billion in 2008. This is a clear sign of a broken market. Not only do these huge fees injure consumers by inflating the cost of goods and services, they create incentives for banks to view credit and debit cards as fee engines."

Brian J. Donovan, engineer, attorney and CEO of Renergie Inc has written a terrific explanation of the current state of the credit industry, Two Threats to Our Nation's Economy and has put out a plea for using funds from credit card transactions to bolster the faltering national Natural Disaster Fund.
Donovan believes that the failure to regulate the U.S. credit card industry in a comprehensive manner and the lack of an adequately funded Natural Disaster Trust Fund are threats to our nation's economy

Donovan lays out the facts.

• Interchange fees are as high as three percent of the purchase total.  These fees add up to "more than one quarter of all credit card revenue."

• Those interchange fees were designed to cover "processing" costs but in fact they pay for rewards programs on some higher-end cards.

• Interchange fees are not regulated in the United States.  They continue to increase.

Donovan's idea for reform has an added twist. He proposes not only that interchange fees be regulated but that a small percentage of the fees be designated for natural disaster relief.  Not only would consumers win--lower swipe fees means lower prices--and the entire nation wins when areas hit by natural disasters can be brought back to full health and productivity within a reasonable length of time. Download his letter to the President on The Need for Comprehensive Credit Card Reform.

Get in touch with your legislators and tell them to fight unfair credit card fees.

In case you missed it earlier, here's a video depicting why these fees are so costly to retailers, and why they are essentially passed on to consumers whether or we use a credit or debit card, cash or check.

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The House financial services committee passed the Consumer Financial Protection Agency today. We shall see if the full house approves this new agency. Shall be interesting to see if this agency will be anything different than we already have.

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