The Fed is proposing new guidelines regarding debit card transactions that could go into effect as early as July — banks aren’t happy about the new rules, which would cap how much they can make on debit card “interchange” fees.
The result? Large banks may limit your debit card to making only small purchases — say $50 or $100 maximum — and for any larger purchase you would need to withdraw cash from the ATM or, you guessed it, use a credit card.
As CNN Money recently reported, “Declined! Your debit card may soon be denied for purchases greater than $100 — or even as little as $50.
JPMorgan Chase, one of the nation’s largest banks, is considering capping debit card transactions at either $50 or $100, according to a source with knowledge of the proposal. And the cap would apply even if you run your debit card as credit.”
Other large banks, including Bank of America, are considering similar measures.
If this goes into effect — or even if enough consumers believe it could go into effect — we could see a real rush away from debit and into credit card products. The problem is, there might be less competition: when everyone needs a credit card, the banks can afford to be more choosy as to who they approve, and they can offer less in the way of initial sign up bonuses and rewards programs.
For this reason, might not be a bad idea at all to apply for a credit card sooner rather than later if you’re worried about the proposed Fed regulations affecting your daily spending habits.
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Disclosures: I used to review credit cards for a living. Also, my web site has a financial relationship with Chase — we participate in their affiliate program. No financial relationship or position on Visa Inc, Bank of America, United Airlines or any other company mentioned in this story at time of publication.