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Will Redbox Lower the DVD Rate Hike After Bank of America Abandons Its Debit Card Fee?

1 Nov, 2011 By: Erik Gruenwedel

Kiosk pioneer cited the recent increase in debit card interchange fees as a result of the Durbin Amendment in part for the 20% daily rate hike for DVD rentals

Bank of America Nov. 1 said it would retreat from controversial plans to charge consumers $5 a month for using their debit cards for purchases.

That proposed surcharge prompted Coinstar last week to announce it would raise the daily rental rate for DVDs 20% to $1.20 going forward. CEO Paul Davis cited debit card interchange fees from the Durbin Amendment, in addition to content license rights, for implementing the first Redbox rate hike in eight years.

Specifically, the Durbin Amendment mandated limits on the amount banks could charge merchants when consumers used a debit — not credit — card for a transaction. That ceiling was expected to cost banks more than $6 billion in annual revenue, according to research firm Javelin Strategy and Research. In addition, banks are limited on how much they can charge consumers for overdraft fees.

Bank of America, which announced the proposed debit card fee last month as a means of increasing incremental revenue, bailed on the idea after widespread consumer protests and the fact other major banks had retreated from implementing similar fees.

“We have listened to our customers very closely over the last few weeks and recognize their concern with our proposed debit usage fee,” Bank of America co-COO David Darnell said in a statement. “As a result, we are not currently charging the fee and will not be moving forward with any additional plans to do so.”

Eric Wold, analyst with B. Riley & Co. in Santa Monica, Calif., in September said Redbox pays banks about 5 cents per debit card transaction — a fee he expects could increase to 22 cents since there is no regulatory cap on transactions less than $10.

Wold has suggested Redbox could up the daily DVD rental rate 25% to $1.25.

“Redbox needs to raise prices enough now to offset both the increase in the interchange fee as well as any potential changes to the studio contracts early next year (whether they come in the form of higher prices for DVDs or a longer delay from 28 days),” Wold said in an email. “The blame on raising prices should not fall on Redbox, they are reacting to the credit card processors raising fees on their end. Redbox is only being reactionary here.”

A Coinstar/Redbox representative was not immediately available for comment.

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