4 Ways You Lose From Financial Reform

Photo (cc) by Betsssssy

Note: This is an abbreviated story about the just-passed Dodd-Frank Wall Street Reform and Consumer Protection Act. For more details on this important new law, please see What Financial Reform Means to You.

The main idea behind financial regulatory reform is to prevent a repeat of the banking crisis that sent our economy into the worst recession since the Great Depression. But there’s more to the new law than that – a lot more. Because in addition to new rules regarding supervision and regulation of our nation’s banks, other new rules were included that do everything from reducing the amount stores pay for debit card processing to providing more financial literacy to our nation’s citizens.

While many of the bill’s provisions are designed to protect consumers, that protection may come at a price. For several ways the new law may end up costing you money, watch the following news story – more details on the other side.

Here’s a little additional detail about potentially costly changes in the law.

1. Fewer debit card rewards programs.

Interchange fees, also known as “swipe fees,” are charges merchants pay Visa and MasterCard for processing debit and credit card transactions. The fee for debit cards currently averages 1.6% – credit cards’ swipe fees average more than 2%. Under the new law, the Federal Reserve can cap the fees on debit cards (but not credit cards) limiting them to what they decide is “reasonable and proportional to the actual cost incurred.” Deciding what’s reasonable will will take months, but in Europe, Visa and MasterCard interchange fees are as low as .2% – in Australia they’re capped at .5%. Odds are that caps here will be higher than those charged on other continents, but lower than they are today. In lobbying for this change, retailers virtually assured Congress that they would pass along their savings to consumers.

That sounds positive (in fact, the entire paragraph above came from my story 5 Ways You’ll Profit From Financial Reform), but it’s hardly a sure thing that retailers will pass their fee savings along to consumers. What is certain is that if debit card fees are reduced, big banks will lose billions. If that happens, they’re highly likely to curtail debit card rewards programs.

2. Cash – don’t leave home without it.

In the past, you may have seen signs in smaller stores saying something like “Minimum credit card transaction $10.” You shouldn’t have, because that practice violated Visa and MasterCard rules. Merchants were required to accept plastic for any amount.

But now, courtesy of the new law, stores are allowed to set both minimums and maximums for credit card transactions.

Expect to see more signs establishing a minimum purchase for plastic. In addition, if you’re the type that pays big bills like income taxes or college tuition with a credit card – perhaps to get mileage awards or cash back – you may encounter maximums as well.

3. Mortgage money – harder to come by?

New rules mean fewer sub-prime and mortgage problems by eliminating things like prepayment penalties, no-documentation loans, tricky interest rate calculations, negative amortization loans and stealth fees. All good for consumers. But that’s a double-edged sword.

To make up for lost revenue in sub-prime loans, all loans could become harder to get – and more expensive. To get the best terms, you might be required to have a bigger down payment and a higher credit score. And this comes at a time when more Americans are struggling with low scores – see this recent story.

4. Higher fees on checking and other bank services

At the heart of the financial reform bill is a massive transfer of wealth from Wall Street to Main Street. Restricting the ability of banks to trade unregulated derivatives contracts, lowering the fees they earn on debit card transactions, increasing the regulatory red tape they face – all things that will have a negative effect on profitability.

In last week’s conference call discussing quarterly earnings, Bank of America pointed to regulatory reform as something that would severely impact future results – check out this article from CNN/Money. And here’s what the CEO of Chase Manhattan Bank said last week: “If you’re a restaurant and you can’t charge for the soda, you’re going to charge more for the burger”.

What will banks do when they’re making less? The same thing you’d do in similar circumstances: try to make up for it elsewhere.

One way banks can create new revenue to replace what they’re losing is to borrow a strategy from the airlines: increase existing fees and invent new ones. Things like free checking may be harder to find. ATM fees may go up. Having a paper statement delivered could cost more. In-person visits to tellers could come at a price.

In short, the nickel and dime fees we’re used to from banks could become dime and quarter fees.

Bottom line? The new financial reform law has the potential to improve things for American consumers, but improvements often come at a price.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
3 Costly Social Security Mistakes That Women Make
3 Costly Social Security Mistakes That Women Make

Women face unique challenges when planning for retirement and making these mistakes can result in a skimpier retirement.

10 U.S. Jobs That Are Disappearing Fastest
10 U.S. Jobs That Are Disappearing Fastest

Think twice before pursuing these shrinking occupations.

7 Effortless Ways to Make Extra Money
7 Effortless Ways to Make Extra Money

In the digital age, new ways of earning cash crop up all the time — and some require next to no effort on your part.

How to Invest in Real Estate for as Little as $500
How to Invest in Real Estate for as Little as $500

If stock market volatility has you looking for other investment options, here’s a way to diversify — even if you don’t have tons of money.

25 Things You Should Never Buy — and What to Buy Instead
25 Things You Should Never Buy — and What to Buy Instead

If you really want to save money, become a more intentional shopper.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

Over 50? The CDC Says You Need These 4 Vaccines
Over 50? The CDC Says You Need These 4 Vaccines

Fall is the time to schedule vaccines that can keep you healthy — and even save your life.

11 Household Items That Go Bad — or Become Dangerous
11 Household Items That Go Bad — or Become Dangerous

When you get the impulse to stockpile these everyday items, pay close attention to their expiration dates.

8 Things You Can Get for Free at Pharmacies
8 Things You Can Get for Free at Pharmacies

In this age of higher-priced drugs and complex health care systems, a trip to the pharmacy can spark worry. Freebies sure do help.

11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

The 10 Most Commonly Stolen Vehicles in America
The 10 Most Commonly Stolen Vehicles in America

A new model parks atop the list of vehicles that thieves love to pilfer.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

9 Deep Discounts Available on Amazon This Friday
9 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

The 15 Worst States for Retirees in 2020
The 15 Worst States for Retirees in 2020

Based on dozens of metrics tied to affordability, quality of life and health care, these are not ideal places to spend retirement.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

26 States That Do Not Tax Social Security Income
26 States That Do Not Tax Social Security Income

These states won’t tax any of your Social Security income — and in some cases, other types of retirement income.

10 Reasons Why You Should Actually Retire at 62
10 Reasons Why You Should Actually Retire at 62

If you can, here are several good reasons to retire earlier than we’re told to.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

7 Surprising Features That Boost Your Home Value
7 Surprising Features That Boost Your Home Value

You can add value to your home without hiring a contractor to do expensive renovations.

5 Keys to Making Your Car Last for 200,000 Miles
5 Keys to Making Your Car Last for 200,000 Miles

Pushing your car to 200,000 miles — and beyond — can save you piles of cash. Here’s how to get there.

5 Things That Make Life More Meaningful for Retirees
5 Things That Make Life More Meaningful for Retirees

Retirees agree: These are the things that give them purpose and fulfillment in their golden years.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.