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Business Last Updated: Mar 14th, 2011 - 12:44:28

Debit Card Limit Debated as Fees Increase
David Hope
Mar 11, 2011, 11:44

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Debit card spending limits are being evaluated this week as some banks consider capping purchases at $50 to avoid large fees.

JPMorgan Chase, one of the nation's largest banks, is considering capping debit card transactions at either $50 or $100, according to a source with knowledge of the proposal.

The move comes in response to a federal crackdown on certain practices. One rule that could go into effect in July is a reduction in the charge that merchants pay to card issuers when customers make purchases with debit cards.

The Federal Reserve has proposed capping a �debit-card interchange� fee. Currently, the fees typically range between 1 and 2 percent of each purchase, averaging 44 cents. The Fed has proposed capping that at 12 cents, though smaller banks could charge more.

For Chase, that change would take a bite of $1.3 billion annually.

"The proposed rules give banks little incentive to authorize large debit transactions that will bring additional fraud risk but no additional revenue," said Greg McBride, senior analyst at "New rules on debit-card swipe fees have the unintended consequence of making debit cards a more expensive or less applicable method of payment for many consumers."

Banks must then pass on the loss to consumers.

Bank of America said it would be forced to recoup costs "by increasing the cost of their everyday debit card transactions, limiting their payment choices, and impacting industry innovation," according to the email.

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