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More than two years after the worst of the financial crisis, banks are still dealing with the aftermath of increased regulation and oversight. But as memories of the market meltdown fade, banks are fighting back against some of the measures that have cut into their profits by threatening to change the very nature of how they do business with their customers.

The debit card battle
Banks have had to deal with new laws ranging from credit card reform to the creation of Elizabeth Warren's Consumer Financial Protection Bureau. But the current battleground involves the reduction of the fees that banks collect when their customers use debit cards to make purchases.

Last July, Congress passed a law allowing the Federal Reserve to determine a maximum amount that banks could charge for debit card transactions based on their actual cost. The current proposal from the Fed would set that maximum at $0.12, a reduction of more than 70% from the average fee of $0.44 that banks charge now.

Predictably, banks have argued that the reduction won't allow them to recoup the costs of creating an infrastructure for debit card transactions as well as the service needed to provide them. Moreover, there's big money involved: JPMorgan Chase (NYSE: JPM  ) expects to lose more than $1 billion annually from the move, and Bank of America (NYSE: BAC  ) argues that it will have to take measures such as "increasing the cost of [consumers'] everyday debit card transactions" and "limiting their payment choices" in order to keep costs in check.

Too big to fail, too small to succeed
One interesting facet of the law is that it doesn't apply to banks with less than $10 billion in assets. Yet while that may seem to give an edge to Pacific Capital Bancorp (Nasdaq: PCBC  ) , Citizens Republic Bancorp (Nasdaq: CRBC  ) , and other small regional banks, even Fed Chairman Ben Bernanke noted that a two-tiered system would only make small banks and their higher fees less competitive than low-fee big banks.

Exactly how banks will respond isn't yet clear. Chase is testing $3 monthly charges for debit cards as well as $15 checking account fees and has stopped giving rewards-paying debit cards to customers. Chase is reportedly also looking at potentially capping the amount allowed under debit-card transactions at $50 to $100. While competitor Citigroup (NYSE: C  ) says it isn't taking any action right now, future developments could lead to similar charges across the industry.

Who wins?
Lawmakers intended for customers to end up being the winners under these regulations. But with banks passing on costs by other means, it looks like the real winners will be the retailers who currently pay the direct charges stemming from debit card fees.

Banks argue that big-box retailers produce the most debit card transactions and therefore stand to gain the most from fee caps. An executive from Home Depot (NYSE: HD  ) said the caps would save the home improvement retailer $35 million annually in debit card costs. Wal-Mart (NYSE: WMT  ) would also stand to reap big gains from the law.

Regardless of the outcome of the final regulations on debit card fees, your best way to stay ahead of the curve is to be flexible in how you pay for things. Using a credit card gives you the same or better protection against fraud and disputed charges as debit cards, and most credit cards also give you free float on your money if you pay your balance in full every month. In other circumstances, writing checks or paying cash can be your best bet if they help you avoid bank-imposed fees.

Protect yourself
The controversy over debit-card fees is just the latest battle in the war between banks and their customers. For now, there's enough competition among banks that you don't need to settle for high-cost solutions to your financial needs; if your bank hikes fees to compensate for lost revenue, you can simply take your business elsewhere. But to protect yourself from unnecessary charges, it's not enough to count on the status quo; you have to pay attention and make sure your bank doesn't try to pull a fast one on you.

For more on managing all the little plastic rectangles in your wallet, check out the Fool's Credit Center.

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Fool contributor Dan Caplinger banks savings wherever he goes. He doesn't own shares of the companies mentioned in this article. Home Depot and Wal-Mart are Motley Fool Inside Value recommendations. Motley Fool Options has recommended a diagonal call position on Wal-Mart, which is also a Motley Fool Global Gains selection. The Fool owns shares of Bank of America, JPMorgan Chase, Pacific Capital, and Wal-Mart. Through a separate account in its Rising Star portfolio, the Fool also has a short position on Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gives you credit.

Read/Post Comments (2) | Recommend This Article (2)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 11, 2011, at 9:15 PM, laughwme94 wrote:

    this is a joke, retailers don't care about consumers, if this happens, we should all start righting checks again and that will cost the retailer smore money.

    if this goes thru, retailer should pay for all fraud costs as they are allowing the fraud to happen when they accept the card, maybe then the banks wouldn't mind only getting the .12 cents, the extra money received by banks help cover the costs associated with fraud.

  • Report this Comment On March 14, 2011, at 10:19 AM, rescuecapital wrote:

    The people who get hurt by all of this are the people with bad credit who can't get a credit card or have a credit card with high interest and fees as well as the poor who can't afford the high fees that the banks will give them as a result of trying to recoup their costs. Honestly no one wins here. Consumers will shop less hurting stores, especially small businesses. Big banks will rake in fees elsewhere hurting consumers. Smaller banks won't be able to compete. Consumers may opt out of the banking system all together.

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