The Federal Reserve finally voted last week to cap debit card interchange fees at $.21 per transaction, almost twice as high as the $.12 recommended cap that was proposed in the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. Consumers will most likely not reap any benefits while banks are happy that the cut in fees isn’t as steep as the original proposal. The new rule goes into effect Oct. 1, later than retailers had anticipated.
Retailers and other merchants were hoping that swipe fees would be limited to the .12 per transaction, but banks lobbied hard to keep fees higher. Estimates of losses to card issuers from the proposed $.12 cap were $10-14 billion annually.
Consumers, meanwhile, are hoping that the savings that merchants will see as a result of paying less in debit card swipe fees to banks will be passed along to them as lower prices. Most experts are advising consumers not to hold their breath. According to the Federal Reserve, lowering interchange fees in other countries did not automatically translate into lower prices for consumers.
Federal Reserve Chairman Ben Bernanke said of the final decision, “I think this is the best available solution that implements the will of Congress.” Adding to the fact that the powers that be on Wall Street and in the Senate had been urging the Fed to see it their way, the pressure was on for the Fed to make the decision they did in finalizing the fee amount for swipe fees.
While merchants were originally paying an average of $.44 per transaction for each time a customer swiped a debit card, they are not truly happy about the $.21-cent fee either. Originally, the talk was that the swipe fee would land around 12 cents per transaction, so $.21 per transaction is almost double what retailers were expecting. Smaller retailers are claiming that they still may be forced to increase prices to consumers, even though the swipe fees will be lower than what they have been paying.
Banks and other financial institutions with less than $10 billion in assets, government benefit cards and some prepaid cards are exempt from the new regulations. In these situations, the swipe fees will remain a percentage of the transaction with no cap.