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Debit Card Swipe Fees Lower, But May Still Be Too High For Retailers

Written by Tim Morral
Published: 5/7/2012

Despite a Fed report that debit card swipe fees have dropped significantly since 2011 reforms took effect, the NRF maintains that fees are still too out of line.

The Federal Reserve has released data showing that the debit card swipe fees charged large banks charge retailers have dropped dramatically as a result of 2011 reform legislation. However, the National Retail Federation (NRF) and others continue to argue that debit card swipe fees are still

What Do Business Pay for Debit Card Processing?

According to the Fed's report, the average debit card swipe fee charged by large banks has dropped to 24 cents -- down from an average of 43 cents prior to the passage of November 2011 legislation that limited the debit card rates that large financial institutions could charge retailers.

As expected, the rates charged by smaller banks (less than $10 billion in assets) remains unchanged since these institutions were excluded from the legislation.

Although the reduction in fees complies with the new legislation, the NRF and other groups have filed a lawsuit, contending that the rate cap is double the amount that is allowable under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010

"We believe the numbers for the big banks are too high and had the Fed followed the law there would be significantly greater savings for merchants and their customers," NRF Senior Vice President and General Counsel Mallory Duncan said. "This is working the way the Fed set it up to work, but the Fed didn't fully comply with what Congress required. This is better than paying the full monopoly prices we paid before but they are still partial monopoly prices."

A report released by the Fed today showed that the average debit card swipe fee charged by large banks covered under last year's regulations dropped to an average of 24 cents in the fourth quarter of 2011, down from an average 43 cents in 2009. Debit swipe fees for banks with less than $10 billion in assets, which were not covered by the regulations, remained unchanged as expected.

The fees are largely in accordance with the cap set under the regulations, but NRF and other merchant groups filed a lawsuit against the Fed in federal court in November arguing that the agency set the cap nearly twice as high as what was allowed under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The issue is an important one for large and small retailers who increasingly see demand for debit card use from customers and who already may be paying high fees for accepting credit cards.

Dodd-Frank said the Fed could consider the incremental costs of acquiring, clearing and settling each transaction and specifically prohibited any other expenses from being used to inflate those costs. Under those guidelines, the Fed initially determined that it costs banks an average 4 cents to process a debit transaction, and proposed that the fees be capped at between 7 and 12 cents per transaction. After intense lobbying by banks and the card industry, however, final regulations adopted in July 2011 set the cap at more than five times the actual cost -- 21 cents plus 0.05 percent of the transaction and, in most cases, an additional 1 cent for fraud prevention.

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