Debit & Credit Card Interchange (“Swipe”) Fees
We are not asking for Congressional action now, but we want to update Congress on five points:
- The new debit card swipe fee rules have begun to take effect. The Federal Reserve Board did a poor job of writing the implementing rules. Nevertheless, with notable exceptions, the new rules are largely working as intended.
- Hidden debit card fees have been reduced by billions of dollars. Highly competitive retailers, restaurants and other merchants are using those savings to provide greater value for our customers – holding the line on prices; more debit and cash discounts at gas stations; more customer service and discounts on items customers want the most.
- Despite the claims of banks over the two years the law was being considered and the rules written, the exemption for small and medium sized banks works. The Federal Reserve found that those banks charged an average of 43 cents per swipe before reform and they still collect exactly the same amount. The regulated big banks, which account for two-thirds of all debit transactions, have seen debit fees decline from 43 cents to 22 cents. Twenty-two cents is double what the Fed initially (and more properly) proposed, but is still a significant reduction.
- NRF and NCCR, joined by Boscov’s Department Stores and others, have sued the Fed for not following the law in its final rules (i.e. granting costs to banks not allowed under the law – hence the doubling of the final fee cap). Doubling the fee cap has created a serious problem for merchants with many “small ticket” transactions. If the court agrees with our reading of the law, that problem is likely to be resolved.
- Making formerly hidden debit card fees more transparent has opened the door to a competitive debit card market (e.g. Bank of America). Congress should begin to consider how it might make hidden credit card swipe fees more transparent as well.
Swipe fees had been growing exponentially. As a consequence of the 2010
Durbin Amendment to the Dodd-Frank financial reform law and the Federal
Reserve’s (flawed) implementation, debit card fees have been cut by several billion dollars annually. This is particularly significant because, for several years, debit has been the fastest growing form of payment. Setting standards before debit fees outstripped those for credit is a significant victory and some protection against even higher fees in the future.
The swipe fee battle was one of the largest and most bruising battles of the 2010 and 2011 sessions of Congress. The retail industry prevailed twice. Fees have been restrained dramatically. However, success was reduced in part when the Federal Reserve Board caved to big bank pressure and allowed their debit card fees rise to a maximum of 21 cents + 1 cent for fraud prevention + 5 basis points for fraud recovery (an average of approximately 24 cents across all transactions). This was considerably higher than the 7 to 12 cents the Fed and its staff had proposed as proper based on actual bank costs, as is set forth in the law. While this has resulted in a significant savings for many merchants, those who primarily handle small ticket transactions were disadvantaged when the card companies decided to turn the Fed’s ceiling into a floor. An NRF-led lawsuit filed last November, likely to be argued this summer, offers the prospect of additional relief.