Retailers have long fumed about the cost of taking plastic. Unlike with checks, banks charge them fees, known as interchange, to process debit and credit card payments. Debit fees average 44 cents per transaction or about $16 billion a year. The amounts are set by Visa and MasterCard, which own the payment networks and pass the money to the banks.
West is widely credited in retailer circles with having coined an alternative, “swipe fees.” It caught on, and eventually became a rallying cry for Senator Richard Durbin, the Illinois Democrat who successfully pushed for a cap on debit interchange rates in last year’s Dodd-Frank financial reform law. This afternoon, bankers will find out exactly how much they will be permitted to charge on debit transactions when the Federal Reserve Board issues a final rule implementing the Durbin amendment. (Credit card interchange was unaffected.)
The new fee schedule includes three parts: a maximum interchange fee of 21 cents; a 1 cent addition that is allowed if the bank issuing the debit card develops a fraud-prevention program; and a variable charge of 5 basis points, or five one-hundredths of a percentage point, of the value of the transaction to recover a portion of fraud losses
NACS Calls Fed’s Final Rule ‘An Irresponsible Abdication of Its Legal Duty’ | NACS Online > News & Media Center > NewsJune 30, 2011
The final rules issued today set a per-transaction debit swipe fee of 21 cents, which is significantly higher than the Federal Reserve’s originally proposed rate of 7 cents or the compromise rate of 12 cents. The rules also add 0.05 percent of the transaction amount for fraud prevention.
Retailers bear the initial brunt, but the swipe fees are passed on to the consumer in the end. NPR reports that banks make about $16.9 billion a year from these fees. The 12-cent cap would decrease that amount by $12 billion.
The Federal Reserve next week is scheduled to vote on its final plan to regulate debit-card processing fees, giving banks and credit unions their first look at new fee curbs set to take effect next month. The public meeting is slated for the afternoon of June 29, according to a meeting notice the Fed released Tuesday afternoon.
As part of last year’s Dodd-Frank financial-overhaul law, debit-card fees will drop about 75% on July 21. The Federal Reserve, which is issuing the interchange-fee rules, has proposed capping fees at about 12 cents per transaction for large banks, down from the current average of 44 cents. The Fed hasn’t announced the final figure yet.