Apparently Congress is fed up with the fees banks and credit card companies charge for standard transactions. Two new pieces of legislation propose to put a hamper on bank interchange fees and ATM fees. Both of these proposed bills could have far reaching implications to consumers, credit card companies and banks, and large and small businesses.

Should Congress Limit ATM Fees and Interchange Fees?

The first proposed bill tackles ATM Fees. According to CNN, three Senators proposed legislation that would limit ATM fees at $0.50 per transaction. Currently, banks and ATM operators are able to charge as much as they wish. With ATM fees coming from your bank and the operating bank, ATM fees can easily reach $3 or more (even higher in some public places where cash is in demand, such as sporting events, bars, casinos, etc.). According to the article, and BankRate.com, the average ATM fee for a non-member user was $3.54 last year.

The proposal is aimed at “lower- and middle-income Americans” who can’t afford the fees.

My thoughts. Personally, I’m not a huge fan of this kind of legislation, and a $0.50 limit on ATM fees would probably result in the removal of many ATMs because they would no longer be profitable. A better solution is to take matters into your own hands and plan accordingly. With a little creativity, or the right bank, it’s easy to avoid ATM fees altogether.

Should Congress Limit Interchange fees?

The Senate added a few changes to the Wall Street reform bill currently being debated in Congress. The amendments would limit interchange fees, which are the fees credit card companies such as VISA, MasterCard, Discover, American Express, and banks charge when your credit or debit card is swiped. The fees are usually assessed in a percentage of the total transaction, often from 1-3% (or more) of the total purchase.

Interchange fees are a big problem for many mom and pop businesses, and even major companies like Wal-Mart have challenged them. Altogether, it is estimated that interchange fees amounted to $48 billion in 2008 (CNN). The same article estimates that interchange fees cost the average American family $427 in 2008 due to higher prices at the stores.

What would change? Under the proposal, the Federal Reserve would be able to determine fee limits, which would be required to be “reasonable and proportional to the actual cost incurred” by the company processing the payment.

“Reasonable” is a variable term, but it would likely be lower than the current rates of 1-3%. Interchange fees in Europe and Australia are .2% and .5% respectively.

The proposal would also allow merchants to offer discounts to customers who pay with cards that have lower transaction fees.

Where does the money from interchange fees go? Interchange fees are used for processing payments, paying out rewards programs and other credit card benefits, and covering operating costs. So in essence, if you are using a cash rewards card, you are actually paying for it through higher prices.

My thoughts. I’m interested to see where this one goes. Interchange fees are a cash cow for the credit card industry and can be prohibitively expensive for some small businesses. I wouldn’t be surprised to see this pass.

What are your thoughts on limiting interchange fees or ATM fees?

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