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Aftermath of fee changes on credit cards in the spotlight

[Saturday, July 9th, 2011]

A change to the interchange fees being charged to the merchants by banks is in the pipeline. While merchants feel that this change is long due, the banks are unhappy and claim that a drop in these fees will make them consider levying charges for other services offered. The new rules and regulations that will govern this fee reduction are being drawn up by the Federal Reserve.

Banks and other financial institutions that offer credit cards to customers use this interchange fee to cover costs when customers’ credit cards are prone to fraudulent activities. Bull’s Eye Credit Union’s President, Dave Stark, said that these fees are also used by financial institutions to cover losses incurred due to various other overheads. Stark said that this move by the Federal Reserve will instigate banks to come up with newer charges that did not exist before.

The Congress approved this Federal Reserve-backed proposal on June 9th. This new proposal will come into implementation from the 21st of July, 2011 and will bring down the interchange fees on credit and debit cards from the existing 44 cents to just 12 cents or below. According to estimates from the Federal Reserve, the 44 cents fee per transaction using cards generated up to $16 billion profits for banks and other lenders.

The President of Independent Community Bankers of America, Camden Fine, said that banks were using the money generated as revenue from interchange fees to offer other services such as the free checking account. He says that this drop in the fees will bring down the number of value added services significantly.

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