WASHINGTON, D.C. (October 17, 2023) – The Merchants Payments Coalition welcomed the announcement that the Federal Reserve Board of Governors will meet October 25 to consider revising its 12-year-old regulation on debit card swipe fees.
“Debit cards are an electronic version of checks that have saved banks billions compared with handling paper checks, but swipe fees make them much more expensive for merchants and drive up prices for consumers,” MPC Executive Committee member and National Association of Convenience Stores General Counsel Doug Kantor said. “The Fed tried to address high debit card fees over a decade ago, but didn’t go far enough, and banks’ costs have continued to fall while fees have stayed the same. It’s time for the Fed to update how much banks are allowed to charge and recognize that consumers, merchants and the economy can’t afford overinflated fees.”
The Fed announced today that the Board will meet to consider “proposed revisions to the Board’s debit interchange fee cap.” No other details were released.
Since 2011, banks that have at least $10 billion in assets and follow rates set centrally by Visa and Mastercard have been allowed to charge no more than 21 cents per debit card transaction – plus 1 cent for fraud prevention and 0.05 percent of the transaction amount for fraud loss recovery. Banks can charge more if they set the fees themselves, but no major banks have done so. Smaller banks are exempt and can charge as much as they like.
In 2010, Congress passed legislation directing the Fed to adopt regulations requiring that debit card swipe fees – which then averaged about 45 cents per transaction – be “reasonable” and also “proportional” to banks’ costs. The Fed found that banks’ average cost to process debit transactions was about 8 cents but set the maximum at 21 cents under heavy lobbying by banks.
The 21-cent rate has remained in effect even though surveys conducted by the Fed every two years have shown that banks’ costs have fallen steadily since then and were at an average 3.9 cents as of 2019. A report on costs as of 2021 that was expected this past spring has yet to be released.
The swipe fee regulation and a related provision of the 2010 law giving merchants the right to choose which networks process debit transactions have saved merchants an estimated $9 billion a year and studies show about 70% of the savings has been shared with consumers, largely by holding down price increases. Nonetheless, the savings could have been higher had the Fed set a lower rate or adjusted rates follow banks’ falling costs.
Debit card swipe fees cost merchants and their customers $34.4 billion in 2022, up 5 percent from 2021, according to the Nilson Report. When all types and brands of cards are included, credit and debit card swipe fees totaled $160.7 billion in 2022 and had more than doubled over the previous decade. The fees are most merchants’ highest operating cost after labor, driving up consumer prices and amounting to over $1,000 a year for the average family.
The Merchants Payments Coalition represents retailers, supermarkets, convenience stores, gasoline stations, online merchants and others fighting for a more competitive and transparent card system that is fair to consumers and merchants. Follow MPC on Twitter, Facebook or LinkedIn for the latest on swipe fees. The National Sporting Goods Association (NSGA) is a member of the Merchants Payments Coalition.
TopicsFederal Reserve Debit Cards Doug Kantor Nilson Report Congress Swipe Fees Merchants Payments Coalition NSGA