Federal Reserve Proposes Cap on Debit Card Fees

WASHINGTON -- A new Federal Reserve proposal would cap debit card fees retailers can charge customers at 12 cents per transaction. The news spurred mixed results: NACS called the proposal "a positive step" but shares of credit card companies took a tumble, with Visa closing down 12.7 percent and MasterCard closing down 10.3 percent Thursday.

According to Reuters, the Federal Reserve put the average interchange fees for all debit transactions in 2009 at 44 cents per transaction. The proposal also calls for comment on requiring debit cards to offer multiple networks which will allow the same debit card to be processed over Visa, MasterCard, or rival payment networks like NYCE.

The Federal Reserve has set a 60-day comment period on the proposal. It is required by the Dodd-Frank financial industry reforms signed into law in July to put out a final rule on the fees by April 21 and it could become effective in July, Reuters reported.

The Dec. 16 proposal was met with optimism from NACS, which called it a "positive step." However, the association holds firm that there should not be any interchange fees on debit transactions, bringing it on an even keel with checks. "The proposed rules are a positive step in addressing the anti-competitive behavior of the banks and credit card companies and an acknowledgement of the voice of American small businesses and consumers," NACS president and chief executive office Hank Armour said. "This is what 5.4 million of our customers had in mind when they signed petitions demanding reform."

In June, NACS delivered to Congress a petition containing two million signatures the association collected at convenience stores across the country. This petition was in addition to the 1.7 million signatures collected by 7-Eleven, which were delivered to Congress in 2009, and 1.7 million signatures collected by Speedway SuperAmerica, which were delivered earlier this year.

According to NACS, consumers in the United States paid $48 million in swipe fees in 2008, with Visa and MasterCard generally charging one to two percent of the transaction amount. It’s been a long-standing argument from retailers that debit transactions, which are essentially electronic checks, should be in line with fees charged to process paper checks. "[The] proposed rulemaking by the Federal Reserve begins to create a system in which debit swipe fees are reasonable and proportional to the processing costs," Armour added.

Broken down by numbers, swipe fees have been the second largest expense item -- with labor costs coming in first -- for retailers for several years, according to NACS. As a percentage of overall sales, card fees rose in 2009, increasing from 1.35 to 1.45 percent of total industry sales dollars, factoring in all forms of payment, including cash and check. At $7.4 billion, total credit card fees also surpassed overall convenience store industry pretax profits, at $4.8 billion, for the fourth consecutive year in 2009.