Every time you use a debit or credit card at a retailer, your bank takes a healthy transaction fee. These so-called swipe fees take a serious bite into stores’ bottom lines and raises prices for consumers.

But good news may be on the way. Recently passed legislation has lowered the amount of “swipe fees” banks can take to 21 cents per transaction. This is a significant drop from the previous rates, which ran between 44 and 47 cents per swipe.

The legislation ended a couple years of fierce debate between lobbyists for banks and advocacy groups for consumers and retailers. Here are the potential consequences for debit and credit card users:

• The Good News: Retailers have long used high swipe fees as an excuse to pass those costs onto consumers. With less money lost per transaction, stores may be able to slightly lower their prices (although whether they actually will remains to be seen).
• The Bad News: Through the debates, credit card companies claimed they would have to raise fees, hike interest rates, or drop card service altogether if they lost swipe fees. With the compromised new fees, lenders may still consider making up the loss at the consumer’s expense.

So, time will tell if the new swipe fee restrictions will ultimately prove beneficial for consumers. Some experts predict that the outcome will likely be a draw.

Many industry analysts remain confident that debit cards are here to stay. Many consumers no longer carry cash, partly as a result of banks’ heavy advertising to move people towards plastic, and retailers will be very reluctant to turn away so many customers.

In addition, some observers estimate that the new laws will save retailers roughly $500 million per month. This was a disappointment, however, for retailer trade groups that had hoped for savings of closer to $1 billion per month.

On the other hand, banks may also lose billions of dollars when the new transaction fees are put into effect. Sources indicate that banks collect up to $19 billion per year from merchant transactions.

While banks are disappointed with the final 21-cent figure, the final number is an improvement over the initial proposal, which wanted to reduce transaction fees to 12 cents.

Exempt from the new fee laws are financial institutions with less than $10 billion assets, government benefit cards, and certain kinds of prepaid cards.

The new restrictions on swipe fees are scheduled to begin on October 1, 2011. If your retailer seems to be in a pleasant mood that day, it may be due to the increasing savings.

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