Legislation May End Interchange Fees and Cap ATM Fees

by Ryan Guina

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?

Published or updated October 3, 2011.
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{ 13 comments… read them below or add one }

1 Daniel Holzman-Tweed

I’m willing to trade ATM fees for card-based reward programs. Thought I suspect that some of that $48 billion winds up being someone’s profit. Reward programs are typically outsourced, too, so that’s one fewer set of eyes that have an opportunity to disclose your personal data.


2 Ryan

I expect a lot of it is profit. ๐Ÿ˜‰

I also expect our spending habits are bought and sold more frequently than we want to know.


3 PT

Thanks for this review of the current proposals. Interested stuff. I agree with you on ATM fees. While they suck the one or two times a year I’m stuck without cash, the rates are what they are b/c people are willing to pay them. Let the free market rule.

As for interchange fees, I don’t want to see them throw the baby out with the bath water on this. Getting rid of rewards would ruin the appeal of credit cards for most consumers.


4 Ryan

PT, there are more than just rewards programs to consider. A fee of 2-3% on all credit card purchases seriously cuts into profit margins in some industries with low margins to begin with. It also hurts the small stores that aren’t able to compete with the likes of Wal-Mart and other big box retailers due to economies of scale. It will be interesting to see where this ends up.


5 brad zerman

As an ATM operator, I can tell you that you are correct in that it is very likely that 100,000 or more ATMs will be removed if the legislation passes, in addition to huge layoffs within our industry. We cannot afford to operate ATMs at $0.50 per withdrawal. In turn, this will hurt the merchants that depend on the ATMs to provide cash to their customer base each and every day.

The simpler and better approach would be for cardholders who don’t appreciate the convenience of accessing their money anywhere, obtain cash from their card issuing bank or a surcharge free network of ATMs and let the free market dictate the rest of the ATMs.


6 Ryan

Brad, even as a consumer I don’t like this idea. It’s far too easy to avoid paying ATM fees. My bank reimburses me up to 10 per month, but I rarely ever use an ATM anyway. I prefer to pull out cash when I am at the bank, or get cash back from my debit card. I’ll even go so far as to buy a pack of gum or a soda and get $40 cash back – just to avoid ATM fees. The gum costs less than the fess, and I get something in return. Of course, that doesn’t help folks in your line of business, but it makes sense to me. ๐Ÿ˜‰


7 Squirrelers

I agree with your comments on ATM fees. This is something for which consumers can make their own individual choices. If a person doesn’t want to pay ATM fees – then don’t use out of network ATMs. Some planning and time management will go a long way toward avoid those fees. This can be done, as there was once a time that people didn’t use ATMs – they actually went to the bank during “banker’s hours” to get cash to spend.

Let the free market work, with these fees – that’s my take!


8 Chris

Interchange fees offer businesses a more convenient method to accept payment. It is shifting the burden of cost away from the business (bounced checks/missing cash) to the company that offers the card. If somebody uses a stolen credit card/debit card, the merchant still receives payment for the goods sold; the issuing card company is the one that never receives payment for the transaction.

Interchange fees; help to allow for these companies to carry the burden of that cost. If interchange fees are limited you will probably see smaller institutions no longer offer credit cards, because they simply can’t afford to maintain the costs without interchange fees or they would have to increase card fees that their customers would no longer be willing to use their card program. Overtime you would see that only the large banks would continue to offer credit cards and consumers would eventually have fewer options in finding a credit/debit card program and would probably be paying higher interest rates and fees for the cards they use.


9 Solo

If this law passes, then you can say goodbye to privately owned ATMs as the interchange passed down to the ISOs (Independant Sales Organizations) who manage these ATMs. The networks are already making it more difficult for small ISOs to stay in business by imposing pass-thru fees which come directly off the top of the interchange. In the past an ISO could make a profit on interchange from an international transaction. Now they end up owing if the transaction amount is over 150.00-200.00. This forces the ISO to increase the surcharge fees in order to make a profit. I have already seen many ISOs close down due to the enormous cost, imposed by the networks, of managing ATMs. If congress wants to regulate something, let them regulate how much pass-thru fee can be charged to the ISO. As it stands, the network collects interchange from the issue and then gives and takes it away from the ISO. The greedy networks are the real problem here, not the ATM owners.


10 Thomas

Keep in mind that interchange fees also are used to offset fraudulent activity on both debit and credit cards. The merchant gets 100% availability of funds and no liability. In my opinion, if you reduce the amount of interchange then you would also need to allow the financial institutions to charge back fraudulent charges.

All the merchants are trying to do is increase their bottom line.


11 Debbie

I just came across this article and was wondering if there is any update as to ATM fees being regulated? I have searched online, but have not been able to come across anything.
I am asking, and maybe you can give me some insight if I have a beef, is there is an ATM in a college town, in a game center, that the maximum limit of withdrawal is $20 with a $3.50 fee. As you may know, $20 won’t go far in a gaming center and I am just wondering if this is legal or if I there is some action I could take?
Thanks for any help you may be able to offer.


12 Ryan Guina

Hi Debbie, I haven’t seen any legislation or regulations along those lines. The ATM scheme you mentioned is a terrible way to rip off consumers. I would avoid that location, come prepared with extra cash, or pay with an alternate method.


13 Debbie

Thank you for the info. Yes, I will pass that wisdom along to my son (although it may fall on deaf ears!!)


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