Federal Reserve Declines to Revisit Swipe Fee Issue

WASHINGTON, D.C. -- The Federal Reserve released its bi-annual report on swipe fees and determined it will keep interchange fee standards -- currently capped at 21 cents plus five basis points -- and the fraud prevention adjustment -- 1 cent -- the same, reported NACS, the Association for Convenience & Fuel Retailing.

The report states that debit swipe fee reforms in the Durbin Amendment have protected smaller banks and credit unions from losing revenues, but the fees paid to large banks by merchants and their customers are five times the actual cost the banks incur when a card is swiped. The Durbin Amendment reduced debit card swipe fees paid to large banks by half, but exempted smaller institutions.

The report also found that the average cost to process a debit transaction is 5 cents, but the average fee collected is 24 cents.

In response, the Merchants Payments Coalition (MPC) noted in a press release that the Fed has refused to protect consumers and merchants from a 500-percent markup levied by banks and credit card companies whenever someone swipes a debit card.

“This report shows that the Fed made a mistake in implementing an effective law. Consumers and merchants should be benefiting more from the reforms," stated Jennifer Hatcher, senior vice president of government and public affairs for the Food Marketing Institute, and an MPC member. "No merchants in a competitive marketplace mark up their products and services by 500 percent. They would be put out of business. It should be the same for banks and credit card companies."

NACS also noted that:

• Merchants paid more than $30 billion last year in credit card swipe fees to banks in the United States. Meanwhile, swipe fees in Europe are eight times lower.
   
• When a customer swipes a credit card, merchants don’t know what the fee will be until they receive a bank statement. Approximately 300 different fees exist, depending on the type of card and the merchant accepting it, and consumers pay around $460 per year in swipe fees through higher prices.
   
• Banks that issue cards are Visa and MasterCard customers, not consumers, and as such, the credit card companies will work to keep the banks happy, not individuals who use them.

The Retail Industry Leaders Association (RILA) also expressed its disapproval of the Fed’s refusal to revisit the issue of swipe fees.

“While the data proves that the reforms have protected small institutions, it reinforces retailers’ outrage that the Federal Reserve’s rulemakings are deeply flawed,” stated Bill Hughes, senior vice president for government affairs for RILA. “The Federal Reserve’s unwillingness to revisit their flawed rules despite this compelling data is astounding, and retailers will continue to use all means necessary to ensure the reforms are implemented as the law intended.”

Although the Federal Reserve is required to ensure that fees charged to merchants that accept debit cards be “reasonable and proportionate” to the transaction’s cost, the swipe fee reform law exempted 99 percent of all banks, according to RILA.

The full report from the Federal Reserve is available here.