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New Report Shows Consumers Have More Choices for Free Checking After Debit Reform

A new report from the Kansas City Federal Reserve shows that debit swipe fee reforms have benefitted consumers with options for free checking increasing since the reforms went into effect, said the Merchants Payments Coalition.

The comprehensive analysis, conducted by economists with the Kansas City Federal Reserve, reviewed checking fees before and after debit reform at samples of both large and small banks. Regulations limiting debit swipe fees that went into effect in October 2011 only apply to banks with more than $10 billion in assets; smaller banks are exempt from the regulations.

The reports finds that while some large non-exempt banks eliminated free checking, a greater number of smaller, exempt banks maintained or increased free checking options. The result, according to the Kansas City Federal Reserve, is that “for an average consumer, free checking became more available after interchange fee regulation.”
Additional highlights of the report include:

• “This article examines broad samples of regulated and exempt banks, compares their fee structures before and after the imposition of debit card regulations, and finds that—on net—consumers actually had in¬creased access to free checking after the debit card regulations went into effect in late 2011.” (p.5)

• “On balance, more exempt banks reduced fees, more than offsetting the impact of regulated banks’ raising of fees. On net, the change resulted in increased availability of free checking accounts.” (p.9)

• “The footprint of banks offering free accounts rose from 19.4 percent of all checking account balances in 2011 to 21.6 percent in 2012. Elimination of free checking accounts at larger, regulated banks was more than offset by an increase in free checking accounts at smaller, exempt banks.” (p.27)
• “Thus, consumers’ net increase in access to free checking stemmed mainly from the greater availability of free checking at exempt banks. At some banks, both regulated and exempt, there were also other changes in the terms of the checking accounts offered to consumers. This article finds evidence that access to free checking has expanded most in cities and regions where banks are engaged in vigorous competition: banks in such markets may offer free checking to attract customers from other banks or to ensure retention of their own established customers.” (p.6)

“This important study puts to rest the myth that big banks use to complain about reform limiting their ability to fix prices. The bottom line is that consumers win and competition is strengthened when debit fees are reduced,” said Doug Kantor, counsel to the Merchants Payments Coalition.

Bolstering the evidence that debit reforms benefit consumers, an economic study conducted by noted economist Robert Shapiro recently found that reducing the cost for merchants to swipe debit cards put $5.8 billion back into the hands of consumers through lower prices in 2012 alone, which led to sufficient increased spending to support 37,501 new jobs. These annual consumer savings and jobs will improve the U.S. economy for years to come due to swipe fee reform.

The Merchants Payments Coalition - UnfairCreditCardFees.com - is a group of retailers, supermarkets, drug stores, convenience stores, fuel stations, on-line merchants and other businesses who are fighting against unfair credit card fees and fighting for a more competitive and transparent card system that works better for consumers and merchants alike. The coalition's member associations collectively represent about 2.7 million stores with approximately 50 million employees.

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