We all know that part of Dodd-Frank legislation is intended to protect consumers from excessive and/or hidden fees from financial institutions.But this morning, The Wall Street Journal highlighted how debit card companies are getting around the legislation (to pick up some more revenue) and hurting small businesses in the process.
It all revolves around small transactions of around less than 10 dollars. Banks used to give merchants discounted fees on those small purchases because they could charge them higher fees for higher purchases.
Then Dodd-Frank legislation put an overall cap on all debit fees, which means that companies can no longer charge more money for larger transactions.
To make up for that lost income, companies like Visa and MasterCard got rid of the discounts on smaller purchases all together. Small businesses that have a lot of small purchases (think your local bagel shop) are feeling the burn.
“There will be some unhappy parties, as there always is when the government gets in the way of the free-market system,” says Chris McWilton, president of U.S. markets for MasterCard Inc. He said the company decided that it couldn’t sustain the discounts under the new rate model because the old rates had essentially subsidized the small-ticket discounts.
So now, merchants who sell small ticket items are raising prices, getting ATM machines, or coming up with ways to give customers incentives to use cash. Dairy Queen mentioned doing the latter in a memo the WSJ obtained, and Coinstar’s movie vending unit, Redbox, has said that it will be raising fees due to higher costs, though it did not specify to the paper that those were specifically debit card fees.