It was revealed this week that leading US banks are considering imposing a cap on all consumer debit card transactions, with a view to limiting the swipe fees which cost retailers valuable revenue. Although the motion has yet to be confirmed, it would go further than simply assisting retailers in obtaining a higher level of profit, and would also potentially change the way in which American citizens purchased both everyday and luxury items.
While the benefits for US companies are obvious, any potential advantages for consumers are far more contentious and debateable. Firstly, it is unclear whether this restriction on how and when consumers use their debit cards is either entirely neccessary or reflective of a democratic society, where individuals should be free to spend their wealth as they desire. However, there is also a very pertinent argument that forcing consumers to make more cash purchases would lead to an enhanced fiscal responsibility within society.
Enhancing Economic Awareness
The second of these points is the most interetsing facing the contemporary consumer, especially in an age where consumer and credit card debt has soared beyond $26 billion in the US. Although this issue was not helped by the global recession, the excessive use of debit and credit cards has also been cited as a major influence, with the clear inference that consumers are more likely to spend higher volumes of their wealth through card payments.
Various surveys have reinforced this notion, supporting the suggestion that consumers are far less likely to develop responsible spending patterns when using a debit or credit card. The primary reason put forward for this is the different processes involved with using card and cash as payment methods, and an individual who withdraws a specific amount of cash for a transaction is forced to give more consideration to their financial circumstance and each individual purchase.
Subsequently, the proposed debit card cap may serve a secondary and unexpected benefit to consumers, encouraging them to make more payments by cash and therefore keep a more detailed focus on their finances. This could produce a dual boost to the state of the US economy, where commercial outlets are able to retain more of their sales revenue and consumers are able to make more considered and financially viable purchases.
The Issue of Personal Freedom
A much smaller consideration is the restriction of personal freedom, where consumers are forced to find alternative methods of payment that may not suit their preferences or logisitcal requirements. This issue would be most pertinent amongst elderly or infirm citizens, who are loathe to carry significant sums of cash or own and operate a credit card. The introduction of a debit card cap would subsequently restrict consumers in a way that could incur health or safety repercussions for certain individuals.
Not only this, but the proposal as it stands is rather vague, and there is no definitive indication as to which payment methodology would prevail as the most popular amongst consumers. Although the concept of cash purchases may lead to benefits in terms of money management and an individuals control of their personal finance, credit cards may well emerge as the payment method of choice for the citizens of the US, and lead to further social issues in terms of consumer debt.
An Example of Strong Government Action
Should a debit card cap be implemented, then it would need to be part of an overall proposal that was detailed enough to educate consumers and guide them to a suitable alternative method of payment. Given the potential benefits of consumers using cash to purchase their everyday and luxury items, it would be pertinent for the US state to encourage this process amongst its citizens as a way to teach fiscal awareness.
This may be percieved as an undemocratic act, and one that impinges on particular freedoms of citizens in order to benefit large corporations financially. However, there is nothing wrong with a government applying legislation that is designed to best serve as many factions of society of possible, especially if it can improve the growth of private sector companies and simultaneously draw more consideration from consumers about their levels of expenditure.
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