MR. KOJO NNAMDIDid you know that every time you pay for something with your debit card, the store has to pay your bank a fee to process the transaction? That little known fee is the subject of a big debate on Capitol Hill that could affect a lot more than just your debit card. Retailers want the fee reduced, banks want it to stay where it is and both say that unless their argument prevails, consumers will lose. That debate is part of a wider shift in the banking world. In the wake of the financial crisis, new government regulations and extremely low interest rates banks are having to rethink the way they do business and make a profit.

MR. KOJO NNAMDIThe resulting changes could have a big impact on what you can expect from your bank and even whether your bank still wants you as a customer. Joining us in studio to have this conversation is Richard Hunt, President of the Consumer Bankers Association. Richard Hunt, thank you for joining us.

MR. RICHARD HUNTThank you, it's great to be with you today.

NNAMDIJoining us by telephone is Mallory Duncan, senior vice president with the National Retail Federation. Mallory Duncan, thank you for joining us.

MR. MALLORY DUNCANHi there, Kojo, thanks for having me.

NNAMDIAlso joining us by telephone is Robin Sidel, banking reporter with the Wall Street Journal. Robin joins us by telephone from New York. Robin, thank you for joining us.

MS. ROBIN SIDELThanks for asking.

NNAMDIRichard, for our listeners who may not have one, could you explain what a debit card is and where you get one.

HUNTWell, a debit card is a proponent or an addition to part of your checking account. So when you go to a bank and open a checking account, you usually get a debit card with that. It is a convenient way to make a payment to your retailer when you go buy gas or you go to the grocery store. You simply take out your debit card, which looks just like a credit card...

NNAMDIRichard and I are both flashing ours right now.

HUNTThat's correct. And I think we have the same color debit card in fact.

NNAMDIYes, so it would appear.

HUNTAnd you just swipe the card, the debit card, and your payment is cleared through the retailer immediately to do. It is something that is enjoyed by millions and millions of Americans on a daily and sometimes hourly basis.

NNAMDIRobin Sidel, there's a report on Capitol Hill over the -- there's a debate, I should say, on Capitol Hill over the fees that retailers pay to banks every time a customer pays for a purchase with a debit card. The so-called swipe fee or interchange fee. The disagreement stems from a provision in the Dodd-Frank Financial Overhaul enacted last year. Can you please explain what the law directed the Federal Reserve to do?

SIDELSure, this is a fight that has been going on for a very long time between banks and merchants over how much the banks should actually charge the merchants for processing and accepting debit card transactions. And so as part of the Dodd-Frank Bill, the congress directed the fed to basically set new levels of how much banks are allowed to charge merchants for debit card transactions.

SIDELObviously, the merchants want a low level, the banks want a high level and the fed came out with its proposals in December and they were pretty significant. More so certainly than the banking industry had thought and it's about a 70 some odd percent decrease in the amount -- the current amount that banks typically charge.

NNAMDIIn terms of the maximum that banks can charge, there's about a 70 percent decrease. Mallory Duncan, retailers say they're paying $20 billion a year in swipe fees and they have to pass that cost onto consumers. Why do your members want a cap on swipe fees?

DUNCANWell, the problem we have with swipe fees right now is that they're not set in a competitive market. You have 7,500 banks in the U.S. and the market is dominated by Visa and to a lesser extent by MasterCard and some others. And every one of those 7,500 banks, who otherwise compete, are charging the same fee schedule for every card merchant combination. That's not a competitive market. You go out -- your listeners shop from store to store and see different prices, but no matter how hard a merchant shops, the merchant cannot find anything other than the fixed price.

DUNCANAnd so what the law is designed to do is to try to begin to crack open that market so we see the beginnings of competition.

NNAMDIRichard Hunt, banks are lobbying against the proposed cut and swipe fees. What would it mean for banks if the fee was capped at a flat rate rather than continuing to be a percent of the transaction?

HUNTWell, first off, Kojo, we don't think that in our country, in the United States of America, the United States government should go in and tell a public company what they can and cannot charge for a product and service. Kojo, I don't like, sometimes, the price of my hamburger when I go into a restaurant, but I'm not going to go to the United States government and say, put a cap on that, go forward. And there's benefits to the interchange fee. For instance, the retailer gets immediate payment, doesn’t have to worry about running down to the customer if he defaults.

HUNTThat's the risk the bank has to take. No fraud, whatsoever. If there's fraud, the banks take care of that as well. So simply put, if we are able -- if we are mandated by the government to reduce our profits by 80 percent, we're going to have to start charging for credit card -- I'm sorry, for checking accounts and for debit cards going forward. It's a mathematical certainty going forward. Now look, we want to keep our customers happy, at the same we want a rate -- we want to have a basic rate of return for our product.

HUNTWe have to invest a lot of money for this. The customer and the retailer both receive a great benefit for this swipe fee. We're only talking about one and a half pennies per dollar per swipe fee. One and a half pennies per dollar.

NNAMDIWell, Mallory Duncan, what I hear you saying about Visa and MasterCard being able to control this and that there's no competition, seems to me that some would say that, well, is a violation of anti-trust law. Why are you not making that argument?

DUNCANWell, in fact, I am making that argument and many retailers are. Right now, there is a massive anti-trust litigation going on in this Eastern district, I believe, it is of New York alleging just this kind of anti-trust violation over the past several years. And...

NNAMDIRon -- go ahead. Go ahead.

DUNCANOkay. I'm sorry. And that case, if and when it ever goes to trial, will probably result in billions of dollars of expenses if in fact the companies were found guilty of having engaged in this practice for several years.

NNAMDIWell, I may be of guilty of causing a digression because I don't want to go into the anti-trust...

DUNCANOkay.

NNAMDI...in case that's taking place right now. Robin Sidel, the use of debit cards is growing fast. There are more debit card transactions than credit card transactions today. Why are they so popular with consumers?

SIDELIt's convenience. You don't have to worry about having enough cash in your pocket, you don't have to lug around your checkbook and get the people who are in line behind you at the cash register all annoyed because you're taking your time to write a check. People like debit cards and certainly also during this financial crisis, people have started using debit cards as a budgeting tool. I mean, basically it's the money that you have in your checking account.

SIDELSo if you don't have it, you can't use it unlike a credit card where you can just spend more than you actually have. So they're really increasing in popularity and no one is expecting that really to go away.

NNAMDIAsking our callers to join this conversation by calling 800-433-8850. Are you paying higher fees at your bank or fees for things that used to be free? What's your experience with the changing bank landscapes, 800-433-8850? Or what's your take on the fight going on over debit card fees, 800-433-8850 or go to our website kojoshow.org. Richard Hunt, let me start with you. Congress said in 1916 that checks must be cashed at face value without any fees.

NNAMDIThe National Retail Federation is making the argument that debit cards should be treated the same way. Why not?

HUNTNight and day difference now between 1916 and, quite frankly Kojo, there's a big difference between now and 2000. The world moves at a much faster pace. There's much, much more fraud that's available out there. It's our interest to make sure that consumers receive their payment in a safe and efficient way. You have to understand, all we're asking for on the banking side is a study into delay. Congress passed this with one day of debate.

HUNTNo congressional hearing, no committee action whatsoever. They rushed this through. All we're asking is to take a time out, take it to your break and study to find out, what are the ramifications this will have on consumers. One of the great concerns we have, since we're not going to be able to make money off of this product, checking accounts, anymore -- and regardless what you may think of the banks today, I think it's not fair to reduce ones profit by 80 percent over one night period of time.

HUNTLet's see what this would do to consumers. Will consumers then be forced out of the banking system into the non-banking payday lending system where people would have to pay 30 percent? That's all we're asking congress to do, time out, slow it down and move forward.

DUNCANKojo (word?)...

HUNTNow, talking about...

NNAMDIWell, Mallory Duncan...

DUNCANKojo.

NNAMDIMallory Duncan, your turn, the National Retail Federation says...

DUNCANI must say, I...

NNAMDI...debit cards should be treated the same way as checks, cashed at face value without any fees, why, given the argument that Richard Hunt just made?

DUNCANWell, let me start by trying to correct the record here. First of all, it said that this was passed in one day without any debate or any consideration by congress. There were at least eight hearings on debit and credit card interchange fees or swipe fees that I'm aware of. Robin Sidel on the phone here wrote about many of them over a course of several years. I testified personally several times on the topic and it took years for this to occur.

DUNCANSo the idea that this was rushed plus the Federal Reserve whose been considering it, has received thousands of comments and is reviewing that. Now, in terms of how this should be treated like a check. When the Federal Reserve was created, there was something very similar in the market place. Back then, if you took a check and took it to Bank A and get received by Bank B, they also reduced the value of the check.

DUNCANIt was called exchange fees. And congress and the Federal Reserve looked at that and said, you know, a check is simply a form of currency. And we want a $100 check to be worth a $100 that can then be deposited someplace else and you can write a $100 check from that and that person will receive $100. And we want to rationalize the currency in this country. And that was done and it's worked very well for nearly 100 years.

DUNCANWhen debit cards were first introduced, this is about 20 some years ago, they worked exactly the same way. If you used a debit card for a $100 transaction, the person receiving it got $100. And they could deposit that in their bank and get a $100. But then something with awry. And what went awry was the monopolies, the duopolies actually, Visa and MasterCard got involved and they found that if they could convince consumers to push the credit button rather than pushing the debit button and entering their safe PIN, the transaction would pass over the expensive VISA network, and they would be able to take credit card like swipe fees off of what had been a costless transaction.

NNAMDIWell, did this happen, Robin Sidel? I've read that some of the lawmakers who supported the Dodd-Frank financial overhaul last year are now having second thoughts about reducing the debit card fee. Are banks which were so recently vilified now winning support again on Capitol Hill?

SIDELWell, I think both sides, it's very clear, are lobbying very hard on this issue. It, um, it did happen, uh, kind of quickly in terms of the Dodd-Frank provision. I mean, we frankly weren't even aware that it was an issue. There was so much other focus on other aspects of Wall Street in the Dodd-Frank bill, and this was kind of a late issue that came up. And so both sides have been lobbying very, very hard.

SIDELAnd I think, you know, they're probably making some headway with certain people, and there have been recent comments by Ben Bernanke, chairman of the fed, as well as Sheila Bair, chairman of the FDIC, expressing some hesitation about the implications of all this on large and small banks. And so the banks certainly want a time out. They retailers -- for the retailers, you can't pass this fast enough. So we'll have to see what happens.

HUNTAnd Kojo, the merchants right now, they want to receive all the benefits without paying any of the costs. If I'm gonna producer a gooder service to the merchants, they should have some -- they should have to pay for that service. Now, as far as competition, yes, there's heavy competition in the debit industry. One is cash. Many of the stores now say if you pay cash we'll give you a two percent discount like many grocery stores do today. The second one quite frankly is you don't have to take the debit card, or the credit card. That is another option as well.

NNAMDIIndeed Washington Post columnist Michelle Singletary today says, hey, let's go back to cash and solve all of this. But final question for you, Mallory Duncan, what's wrong with the time out?

DUNCANThe problem with the time out is twofold. Despite what was said earlier, this is still a privately priced fixed market, so the prices are much too high. In fact, Congress has only taken a small bite at this, what -- but that small bite amounts to a billion dollars a month. And so what the banks really want is to say let's have a six-month or two-year delay so they can keep that billion dollars a month for the next six to 24 months, out of merchants and their customers' pockets. And meanwhile, they're gonna use that delay to try to find a way to kill it overall.

NNAMDIRobin Sidel, has anyone conducted a study to see which way consumers benefits more?

SIDELWell, I think -- sure, both sides have, and they both come up with very radically different decisions.

NNAMDII mean, apart from -- apart from the two sides that is. Anyone independent of the two sides.

SIDELWell, I mean, you've got a lot of consulting firms that are coming up with their own numbers. I mean, I think one of the important things here is that it's not -- I mean, the impact on consumers is going to be pretty significant no matter what. There are already changes going through in the banking system that we'll talk about that are a direct result of this. And so, most consumers don't really know anything about these fees. They think, oh, I don't pay a fee on my debit card. This doesn't have anything to do with me.

SIDELBut the banks are going to be losing a lot of revenue, and you can be sure they're gonna try and make that up in other places. And, you know, interchange, swipe fee, it's all kind of arcane and wonky, and not something that the average person notices or knows anything about. But that's gonna change when they start seeing fees on their checking account.

NNAMDIGot to take a short break. When we come back, we will talk about some of the other banking issues that Robin Sidel referred to. Mallory Duncan, thank you for joining us.

DUNCANThanks.

NNAMDIMallory Duncan is senior vice president with the National Retail Federation. You can call us 800-433-8850. We'll be talking about a number of other banking measures. You can go to our website, kojoshow.org, join the conversation there. I'm Kojo Nnamdi.

NNAMDIWelcome back. We're talking about what to expect from your bank. Our guest, Richard Hunt, is president of the Consumer Bankers Association. He joins us in studio. Robin Sidel, banking reporter with the Wall Street Journal joins us by phone from New York. Robin, you reported that banks began a broad overhaul of checking accounts last year, and that some of the banking services we are all used to aren't going to last.

NNAMDIBank of America and JP Morgan Chase are testing new fees on debit cards and checking accounts. What does the landscape look like for bank customers?

SIDELWell, it's very different than what is has been. Already we've seen big players like Citibank, Wells Fargo have already made changes to their checking accounts, adding fees. And now Chase and Bank of America are doing the same thing as is U.S. Bancorp and a whole bunch of other large and small banks, and this is all in anticipation of the changes to the restrictions in debit card usage. So as I had said before, they're going to certainly try to make up that lost revenue in other places, and the consumer is the one who's going to see it.

NNAMDIRichard, you said the era of free checking will soon be over. Why, and what does it have to do with the controversy you were discussing over interchange fees?

HUNTSure. Because some of the fees that the banks would collect on the interchange fee would go to subsidize a checking account. Right now a checking account costs roughly anywhere from $230 to $300 for each bank. The consumer does not see that because the bank covers that charge. If interchange went down by 80 percent, we would then start losing money on a checking account. We make a profit of about $35, according to David Kemper, CEO of Commerce Bank in Missouri, we make about $35 off of each checking account.

HUNTWe would go to a negative $27. So we would be losing money. And I don't care what industry you're in, if you're starting to lose money, you have to recoup it in other places. So when I said the era of free checking account is over, if interchange does pass, it will be over. And so will be the era of the debit card as well.

NNAMDIIf interchange does not pass, are you guaranteeing that the era of free checking will not be over?

HUNTThat is certainly something I would tell all of our banks to do. We represent -- well, there are 7,100 banks, but it would certainly be in the bank's best interest not to do that. We value our relationship with our customer. We know in this day and age you can transfer your account over quite easily, so we want to keep as many customers at our bank as possible. Think about today with what you get for free checking.

HUNTYou get free statements, although I will tell you, my mother in Jennings, Louisiana calls me last week complaining that she is now being assessed by her small community bank a $1 fee for receiving statements. Now, Kojo, I'm not gonna tell you I didn't waste my energy explaining to my mother what online banking is all about. I just went ahead and paid the $1 for her. But you get free statements, free 24/7 customer service, free online banking, unlimited access to bank branches and ATMs, reward programs.

HUNTAnd I think most importantly, Kojo, 100 percent fraud protection for zero today. So you hear about the retailers saying they're gonna save a billion dollars, but nothing in the legislation says that must be forwarded to the consumer. In fact, Home Depot the other day on their earnings call said they're gonna make over $33 million off the interchange fee reduction, never saying they were gonna pass it on to the consumer.

NNAMDIRobin Sidel, you have said, and I'm pretty sure Richard Hunt has said that banks are going to be essentially firing some of their customers. Who falls into that category and why?

SIDELWell, that's certainly true, and the banks really have been making no bones about it. I mean, there are customers who are already unprofitable for the bank, and those customers are subsidized by the customers that the banks make money off of. But if you only have a checking and no other relationship with that bank, if you don't use a lot -- make a lot of transactions, if you don't do direct deposit, if you have just a minimal amount of money in that checking account, and you don't have any other kind of activities really with the bank, they're not gonna want you as a customer.

SIDELAnd what they're gonna -- or if they do keep you as a customer, you're gonna be paying a pretty high monthly fee. And that's certainly something that the banks are aware of, and politically they're making a big issue about that, saying that it's going to drive some of their low end customers out of the banking system to check cashers, to payday lenders. We'll see if that happens, but the banks are certainly making no bones about the fact that they are ready, willing, and eager to get rid some of their unprofitable customers.

HUNTYeah. I would disagree with saying eager. We think it's in everyone's best interests to stay in the regulated banking system. Even with the economic meltdown that we've experienced the last couple years, we want everyone to stay in the heavy regulated banking system.

NNAMDISo what banking options then would be available for people who may not have enough money to keep a minimum balance, or to have multiple accounts?

HUNTUnfortunately, they would go to the payday lending sector. They would probably go to the prepaid card sector.

NNAMDIWhat happened to your eagerness to keep them?

HUNTWe want to keep them, but we also have to make a profit to our shareholders. We -- we're not a utility yet. Now, according to the United States government, we're getting closer and closer to a utility, but we do have to make money.

NNAMDIOn to Leon in Alexandria, Va. Leon, you're on the air. Go ahead, please.

LEONYes, thank you for taking my call. I have a question about the products which are being talked about. Weren't most of these debit cards, ATMs and stuff that they're taking about charging for, weren't they introduced to save the banks money so they don't have to process paper checks, so they don't have to deal with as much cash coming across their counters?

HUNTSure. And that's very true, and it did save the bank some money going forward, but you have to remember, the technology has changed so much in the last ten years with fraud protection more than anything else, plus the expansion of banks and network systems going forward. So I would tell you that the interchange fee could have been higher had it not been for that new technology coming into place here.

HUNTNow, one thing other you said, Kojo, you said the banking industry all of a sudden is receptive up on Capitol Hill. I wish that were the case. That would make my job a whole lot easier. But we also have two other organizations supporting our cause that are never aligned with the banking industry, the Consumer Federation of America, the National Community Reinvestment Coalition, they understand what this will do to consumers driving them out of the banking system. So we're glad to have them aboard. And I would just go back...

NNAMDIYes. I did read that they were aboard with you. But I do want to get a few more callers and here is Bryant in Fredericksburg, Va. Bryant, your turn.

BRYANTQuick question. Back to the swipe fee, just wondering if that -- is there a difference when you say debit -- when you say credit actually instead of debit and you have a debit card, for the merchants. Is there a difference like in the charge that applies to merchants?

NNAMDIYou only have a debit card, you do not have a credit card, Bryant, is what you're saying? But when you use your debit card, the merchant said debit or credit, and you credit, and you want to know if that makes a difference?

BRYANTRight, exactly.

NNAMDIDoes that a difference?

SIDELThis is one of the most confusing things to...

NNAMDIIt is.

SIDEL...to customers, and even frankly in the newsroom at The Wall Street Journal, we talk about this all the time, and I'm always trying to explain it to my colleagues. It's just very confusing. They are both debit card transactions. Here are different costs associated with them. If you hit credit, it is a higher cost to the merchant than if you hit debit, which is still a cost to the merchant, but a lower cost. You have certain merchants who want you to put in -- if you hit the debit button, you'll be putting in a PIN, and merchants, because that's cheaper, want to sometimes steer their customers.

SIDELThat may be the first alternative that comes up. They're both taking money out of the same place though. It's your money coming out of your credit card -- I'm sorry...

NNAMDIYour bank account.

SIDEL…it's the money that's coming out of your checking account. The difference is how much the merchant is paying.

NNAMDIRichard Hunt?

HUNTAnd remember, the Grocery Stores of America have renegotiated their interchange fee. So they're paying less than one percent for their interchange fee, but Robin is correct. Within the debit card, you basically have two options within your debit PIN or debit, and her explanation was totally correct on that.

NNAMDIRobin, 2010 marked the end of a decade-long construction boom for retail banks. How did the economy and the surge in online banking contribute to the slowdown in building new branches?

SIDELWell, they're still building new branches. I think they're just doing it at a slower pace.

NNAMDIOkay.

SIDELThere certainly was a boom, but it takes a wide for branches to become profitable for a bank. And there's also been some acquisition activity by some of the largest banks, and some of the big banks -- some of the banks that failed, they were acquired by other banks that are now -- got those branches. So, you know, the era of the branch banking isn't going away, and I think studies show that people still got to branches, particularly for dispute resolution.

SIDELAnd -- but certainly, I think studies show that most customers use multiple forms of banking. They may do some banking online. They may go into the branch for some, you know, some may do some of their banking through their mobile phone. So there are many different ways now to do banking, but I don't think that branches are going away. It's just slowed down a little bit because the pace was just really kind of crazy.

NNAMDIInterest rates are so low right now that people who deposit money are not earning a great deal of interest. Is there anyway consumers can earn higher interest these days, Richard Hunt?

HUNTNo. That's up to the fed how much interest rates they want to charge on the open market, and we will reflect that going forward. But obviously some people actually want a higher cost of living so they can earn more money on their savings account. It depends on what generation you're in quite frankly whether you wanted to see that happen. On the era of retail banking, that is a great discussion we're having in the banking industry. Meredith Whitney just came and out they'll be less branches at the end of 2011 than at the beginning of 2011.

HUNTOne thing we're finding out, the younger generation, those 17 to 30, they don't go to the bank branch anymore. They do everything on their Smartphone. They do everything on their computer. The older generation, of course, they also think it's social hour, because they want to go visit with their neighbor and so forth. So there's a real difference going on between the generations, and it's just a great conversation we're gonna be having for many years in the future.

NNAMDIRobin Sidel, what's going on with overdraft protection? Banks are no longer allowed to charge an automatic overdraft fee, so anyone who wants the protection has to opt in, correct?

SIDELYes. That was a big issue last year, and the banks really spent a lot of time and a lot of money trying to explain this to customers, to tell them that if they want that protection, they need to opt in. You don't just get it automatically anymore. There have been some banks that have decided to do away with overdraft at all. And again, that's just more revenue that's being lost to the banking industry, but that they're going to make up in different places.

SIDELAnd I just wanted to add that it's not just checking account fees. There are a lot of -- there are perks that are going away. Banks are already removing rewards from their debit cards.

HUNTYeah. That's correct.

SIDELAnd we're likely to see more of that as well.

NNAMDIBut I've been reading that this is a great time to be a banking customer if you can take advantage of the deals and consolidate your business into -- in a single bank. How can consumers make the most of the opportunities that are out there, Richard? Oh, first you, Robin.

SIDELOh, I'm sorry. Well, in a way you need to do basically what the bank wants you to do, right? And that means consolidate your accounts, and do most of your banking with one bank. If you've got multiple accounts with a bank, they're going to treat you better. You're going to get a better deal on a loan, you're going to get different kinds of benefits, and there are people who have problems with that. They don't want to put all their eggs in one basket. But again, if you only have limited interaction with that bank...

NNAMDII only have limited time, so Richard, you only have about 20 seconds.

SIDELYeah. They won't be your best...

HUNTI think it's in a customer's best interest to do all their checking and all their banking services with one bank. Have several lines, channels, within one bank going forward. I think you get your best bang for the buck going forward with it.

NNAMDIAnd I'm afraid that's all the time we have. Robin Sidel is a banking reporter with The Wall Street Journal. Robin, thank you so much for joining us.

SIDELThanks for having me.

NNAMDIRichard Hunt is president of the Consumer Bankers Association. Richard, thank you for joining us.

HUNTThank you. Enjoyed it thoroughly.

NNAMDIAnd thank you all for you listening. I'm Kojo Nnamdi.