NATIONAL REPORT — Proposed changes to debit card swipe fees were met with positive reactions from the retail community, though some raised concerns that the Federal Reserve's revisions don't go low enough.
The National Retail Federation (NRF) said a Federal Reserve proposal released today to lower the cap on debit card swipe fees, also known as interchange fees, is a welcome move but still leaves the fees significantly higher than banks' cost to process the transactions.
"This is a significant reduction that will save money for retailers and their customers, and we welcome the progress that has been made," said NRF Chief Administrative Officer and General Counsel Stephanie Martz. "Nonetheless, it still doesn't get to the 'reasonable' level Congress sought and it isn't proportional to banks' falling costs.
"The Fed needs to meet that goal, and particularly needs to consider that a larger share of fraud costs has shifted from banks to merchants since the cap was established. Main Street merchants and American families have paid billions of dollars too much and want the Fed to do what Congress intended a dozen years ago," Martz added.
At a meeting on Oct. 25, the Federal Reserve Board of Governors voted six to one to open up proposed revisions to Regulation II's Interchange Fee Cap to a 90-day public comment period. Those 90 days will begin once the proposal is published in the Federal Register.
Under the revisions, the base component cap would decrease to 14.4 cents, the ad valorem component would decrease to 4 basis points, and the fraud-prevention adjustment would increase to 1.3 cents per transaction. With the three components taken into account, the maximum interchange fee for a $50 debit card transaction will be 17.70 cents down from the current value of 24.50 cents for the same transaction, as Convenience Store News reported.
Austen Jensen, Retail Industry Leaders Association (RILA) executive vice president, government affairs, issued the following statement in response to the Federal Reserve's decision to propose lowering the interchange rate on debit transactions to 14.4 cents.
"Retailers welcome the Fed's action's today in proposing to lower the interchange rate on debit transactions from 22 cents to 14.4 cents. These transactions cost card networks and the largest banks 3.9 cents yet they have been charging merchants almost 600 percent more per transaction. Today's proposed rulemaking signals an end to these outrageous markups," he said.
Similar to NRF, RILA believes the cap can go even lower.
"As the rulemaking process unfolds, the retail industry will continue working with the Fed and will submit comments advocating that the rate should be set even lower than 14.4 cents. The data overwhelmingly proves that the current rate needs to be lowered to more accurately reflect reasonable and proportional costs incurred by banks and card networks," Jensen said. "We welcome the opportunity to advocate for a more sensible debit transaction interchange rate and support the Federal Reserve's biannual review and update to ensure the rate remains proportionate to actual costs to process these transactions."
The Merchants Payments Coalition (MPC) called it a step in the right direction but echoed calls for additional cuts.
"Banks have been charging more than five times their costs for debit card transactions and the Fed is finally saying that's too much," said MPC Executive Committee Member and NACS General Counsel Doug Kantor. "This is a step in the right direction toward the real, competitive market that Congress wanted to see but still leaves the fees too high. Merchants and the consumers who ultimately pay these fees have been overcharged for far too long, so we need to get this right."