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At-a-Glance Card 'Rulebook'

Debit CardsKey things you need to know

Interchange Rate Cap The Durbin Amendment to the Wall Street Reform and Consumer Protection Act permits the government to regulate debit interchange rates. The interchange…

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Interchange Rate Cap

The Durbin Amendment to the Wall Street Reform and Consumer Protection Act permits the government to regulate debit interchange rates. The interchange rate is a fee that banks pay each other when a debit card transaction happens. Consumers don’t pay this fee and payment network companies like Visa and MasterCard don’t receive interchange revenue. Though the interchange rate cap for debit card purchases doesn’t directly affect consumers, some predict that it may result in higher consumer costs for debit card and checking account services and reductions in debit rewards program because the cap cuts revenues used to run payment networks. The rule caps the amount issuers can charge merchants to 21 cents per debit transaction, plus 5 basis points on the amount of the transaction for fraud costs, plus a penny for fraud prevention programs.

Transaction Processing/Network Routing

Banks that issue debit cards must offer at least two competing network processing — or routing — "brands" on each card. This means that the merchant can decide how your debit card transaction is processed. If the merchant chooses, the transaction may be processed on the cheapest network. However, the network chosen by the merchant may not have the same consumer protections, benefits or voluntary liability limitations offered by other payment networks.

Merchant Acceptance Rules ('Steering')

U.S. merchants are allowed to offer discounts or other incentives to influence you to use — or”steer” you to — a particular form of electronic payment. They can also guide customers to other forms of payment; for example, by offering discounts to customers who choose to pay with cash, check or PIN debit. In addition to offering you a discount for paying with cash, a merchant can, for example, offer you an incentive to use a specific card network, like Visa or MasterCard. The key is for consumers to pay close attention to merchant advertising and to know which retailers let you pay the way you want without penalty.

Overdraft Rule For Non-Recurring Debit/ATM Transactions

An overdraft is when you do not have sufficient funds in your account to cover a payment or withdrawal. Financial institutions can’t charge you for overdrafts on debit card transactions — ATM withdrawals or one-time purchases — unless you have opted in (consented). By law, the bank must provide a notice outlining all its overdraft services and fees and allow you to make a choice.

Overdraft opt-in requirement

Your bank must have your permission before it can charge a fee to cover a debit card overdraft if you do not have enough money in your account to pay for the transaction. It is your choice whether or not to enroll in your bank’s “standard overdraft practices” program.

Giving your bank permission to pay overdrafts on debit card transactions and ATM withdrawals, and to charge you a fee for doing so, is called “opting in” to your bank’s “standard overdraft practices.” If you have a joint account, only one holder’s agreement to opt in for overdraft protection is required. If you opted in at one time but later change your mind, you can opt back out anytime — just call your bank.

If you do not opt in to the bank’s “standard overdraft practices,” and you do not have enough money in your bank account, debit transactions, ATM withdrawals and point-of-sale transactions will be denied, and you won’t be charged overdraft fees (often as high as $35 each).

The “standard overdraft practices” rules do not apply to checks or preauthorized bill payments. With or without your opt-in, banks can charge overdraft fees for bounced checks or electronic bill payments when your account contains insufficient funds. It’s important to know that you can be charged more than one overdraft fee in a single day, as the fees are charged “per item,” meaning that each debit or check that bounces incurs a fee. This could add up to more than $100 per day depending on the circumstances.

Also not covered by the opt-in requirement are “recurring” debits that you have set up to allow companies to take money from your account. This means that if you establish an automatic bill payment through “online banking,” and a payment is sent when you don’t have enough to cover it, the transaction will “bounce” and you’ll be charged an overdraft fee.

It’s important to remember that opting in to payment of one-time debit and ATM withdrawal overdrafts does not mean that you will be given an affordable repayment schedule. The money that the bank advanced, as well as overdraft fees, must be paid within a few days, or you may be charged another fee. Any money you owe will be taken from your account by the bank when your next deposit is made.

Overdraft protection plans

You may be able to avoid overdraft fees by enrolling in a separate overdraft protection program at your bank. When you enroll, the bank will pay your overdrafts by lending you money through a “line of credit“ or by transferring money from your savings account to your checking account. The first option — credit-based overdraft protection — requires that you have a good credit history. The savings-based program requires that you have enough money in your savings to cover overdrafts. Both will charge a small transaction fee, but you will not pay bounced check fees or overdraft fees. Ask your bank for more information.