Part III: Debit Card
The debit cards have been out in the market since 1960s. They helped to change the way that people used money and bank accounts. Debit cards are frequently used to pay for purchasing at stores or other locations all over the world. They are also worked by debiting money from owners’ checking accounts. For many people in the United States, debit cards have taken the place of cash and checks. However, debit cards are still a relatively new banking tool. The debit card rules has been changed over time since debit cards were out in the market. There are two main changes that attract people’s attention in recent two years.
Electronic Fund Transfer Act: New Overdraft Rules
According to Board of Governors of the Federal Reserve System, new rules give debit card users additional options regarding overdrafts. An overdraft usually occurs when a debit card user make a purchase but don’t have enough money in the accounts to pay for it. Banks will cover the costs when card users become overdrawn by charging a fee (Board of Governors of the Federal Reserve System [BGFRS], 2010).
Banks used to automatically enroll customers in standard overdraft practices. Banks will cover customers’ transaction for a flat fee around $20 to $30 every time customers overdraw their accounts. Banks also offer an overdraft protection plan that provides a link to users’ saving accounts to cover transactions by charge less expensive fees than standard overdraft practices (BGFRS, 2010). The new overdraft rules provides that banks must not charge overdraft fee on certain debit card overdrafts-specifically ATM and one-time debit card overdrafts unless the customer “opted in (BGFRS, 2010)” to pay such fees.
The Federal Reserve’s final rules favor customers on most overdraft issues. However, there are some arguments concerning about the transparency of overdraft services related to customers’ choices. Most banks do not summarize important policies and fees information in a uniform and easy to understand format that allows customers to compare account terms and conditions. Customers always get confused with overdraft fees because there are no consistent names for them. Banks also do not provide customers with clear and comprehensive information about overdraft options and their costs. Customers have no clear knowledge about the overdraft fees in above situations even though they have the right to choose whether opt in or not under new overdraft rules. Banks are also likely reorder withdrawals from highest to lowest dollar amount or reserve right to do so without notice customers in order to maximizing overdraft fees. Banks also increase certain overdraft fees.
Durbin Amendment: Capping Interchange Fee of Debit Card
According to the Federal Reserve System, new rules regarding to interchange fee of debit card is effective on June 29, 2011. Debit card interchange fees “are established by payment card networks and ultimately paid by merchants to debit card issuers for each electronic debit transactions (Board of Governors of the Federal Reserve System [BGFRS], 2011)”. This rule, Debit Card Interchange Fees and Routing is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Before Durbin Amendment is finalized, interchange fee is the fee paid between banks for the acceptance of card based transactions. A merchant’s bank pays customers’ bank certain amount of money every time they pay with debit cards. “Under the Final Rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction (BGFRS, 2011)”.
Durbin Amendment drastically lowers interchange fee on debit cards issued by banks, cutting into the banks’ revenue while, presumably, lowering costs for merchants and therefore customers. Merchants or retailers also insist that they are going to be able to bring prices down as debit interchange fees go down. However the evidence is weak that lower interchange leads to lower prices for customers. Debit card issuer will be more likely imposing an annual fee on debit cards under new rules, raising other fees that would be paid by consumers, or reducing the interest rates paid on consumer deposits. Increased fees on debit cards will discourage customers from using them (David, 2011). Banks have priced lower swipe fees into their checking offering that means customers receive less and less free or rewards checking. Since prepaid debit cards are not covered by Durbin Amendment, an explosion of this payment system is not surprising.
Durbin Amendment: Fraud Prevention Adjustments
The Federal Reserve Board announced approval of a final rule that allows debit card issuer banks with more than $10 billion in assets to charge a one cent fraud prevention adjustment. The final rules require that debit issuer must notify the payment card networks every year as to whether it expects to receive the adjustment. In addition, the final rules prohibit card issuers from receiving a fraud-prevention adjustment if the institution is largely noncompliant with the fraud prevention standards. This amendment is effective on October 1, 2012 (Board of Governors of the Federal Reserve System [BGFRS], 2012).
The new rule requires merchants to pay fees that cover 100% of fraud prevention costs incurred by issuing banks. Merchants under this amendment will likely pay for fraud prevention even if banks do not prevent fraud. However, it is unfair for the Federal Reserve Board to charge merchants who already bear nearly half the cost of preventing fraud. The rule will be ineffective if banks do not prevent fraud before they are issued adjustments.
Part IV: Conclusion
Both credit card and debit card are relatively new banking tools. New regulations created regard to credit card and debit card issues are trying to protect customers’ rights. These new regulations give customers choice to get rid of overdraft fees, raise existing interest rate, give customers more time to pay and etc. However, restrict regulations on banks will possibly give customers hard time to apply for a credit card in the future. Debit card banks will more likely to increase the fees for the credit card and less people would want to use it. It is hard to balance the benefit and cost of these new regulations, but congress could continue working on changing them in order to provide customers more benefits.

References
Board of Governors of the Federal Reserve System. WHAT YOU NEED TO KNOW: New Overdraft Rules for Debit and ATM cards. Retrieved June 22, 2010. From http://www.federalreserve.gov/consumerinfo/wyntk_overdraft.htm
Board of Governors of the Federal Reserve System. 2011 Banking and Consumer Regulatory Policy: Press Release. Retrieved June 29, 2011. From http://www.federalreserve.gov/newsevents/press/bcreg/20110629a.htm
Board of Governors of the Federal Reserve System. 2011 Banking and Consumer Regulatory Policy: Press Release. Retrieved June 27, 2012. From http://www.federalreserve.gov/newsevents/press/bcreg/20120727a.htm
Martin, J. S. (2010). Debit Card Overdraft Services: Will the Federal Reserve's New Rules Enhance Transparency and Consumer Choice?. Banking & Financial Services Policy Report, 29(2), 1-9.
John, David C.. The Heritage Foundation. The Durbin Debit Card Interchange Fee Cap Hurts Consumers. Retrieved March 17, 2011. From http://www.heritage.org/research/reports/2011/03/debit-card-changes-how-the-durbin-interchange-fee-hurts-consumers
REGULATION II -- DEBIT CARD INTERCHANGE. (2012). Pratt's Bank Law & Regulatory Report, 18(9), 24-25.