Looks like all that lobbying worked out well for banks.
The American Bankers Association scored a victory today when the Federal Reserve agreed to increase the amount banks can collect from merchants each time a consumer swipes his debit card from its original proposal.
Originally, the Durbin amendment called to cap so-called interchange fees banks charge retailers at 12 cents per transaction, but the Fed announced today that it would up that cap to 21 cents. In addition, banks can also take an additional 1 cent per transaction fee if they adopt fraud prevention policies and procedures.
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The new fees would go into place in October. The regulation was previously scheduled to take effect on July 21.
That’s good news for banks like JPMorgan Chase and Bank of America and card companies like VISA and Mastercard who get a significant chunk of revenue on those swipes fees but bad news for retailers who thought they’d be getting a major break on the fees bank and card companies collect from them.
Here’s what’s at stake: retailers like Starbucks, for instance, incur an interchange fee by your bank every time you swipe your debit card for a cup of coffee. The banks and card companies say the fees are important because they are put toward network connectivity, hardware and software labor and fraud prevention measures related to the transaction.
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Retailers argue that the money collected per transaction, which currently has no cap and averages about 44 cents, were excessive and hurting consumers. How? Retailers argued that they had to increase the cost of goods to make up for the money paid out to banks and card companies.
The Federal Reserve agreed with retailers and proposed to cap the fee.
Since then the ABA has been lobbying hard to do something about either getting rid of the cap or increasing it. Their argument: capping debit fee to 12 cents per transaction won’t cover the costs of fraud prevention on our end. We’ll have to charge customers through other measures to make up for the lost revenue.
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Today’s decision by the Fed to increase the cap from 14 cents to 21 cents reflects the costs banks face on each transaction including network connectivity, hardware, software and labor used for electronic debit transactions.
Of course retailers are not thrilled with the Fed for “bending to bank pressure” and increasing the cap.
“The Fed’s rule is an irresponsible abdication of its legal duty to implement the law as written in favor of doing the bidding of the nation’s largest banks,” said Lyle Beckwith, Senior Vice President of Government Relations at the National Association of Convenience Stores.
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“The Federal Reserve very clearly did not follow through on the intent of the law,” said Mallory Duncan, Chairman of the Merchants Payments Coalition. “This rule is unacceptable to Main street merchants and consumers, who were counting on the Fed to issue a fair rule that followed Congress’ law. Unfortunately, this rule does not meet those qualifications.”
It’s unclear now how this will affect consumers since the cap has been negotiated to consider both banks and retailers. For retailers, though they’re not pleased with the last minute increase, the cap alone means they’ll have a better idea of how much they’ll be facing in swipe fees each month, and for banks it means revenue losses on the swipe fees won’t be as harsh as initially anticipated.