WASHINGTON–Another group representing merchants is calling on the Federal Reserve to revise debit card swipe fee regulations.
The Merchants Payments Coalition called on the Fed to revise the debit card swipe fee regulations adopted a decade ago under the Durbin amendment, citing a new Fed report showing banks’ average cost of processing the transactions has fallen by half. MPC also welcomed the Fed’s announcement that it plans to clarify that debit card routing requirements apply to all transactions regardless of whether they take place online, in-store or in another form, as CUToday.info reported here.
“The Fed was required to regularly review these fees and was expected to adjust them if the cost of processing transactions went down,” said Doug Kantor, counsel with the Merchants Payments Coalition. “Banks’ costs have constantly fallen but merchants are still paying as much as they were a decade ago. It’s time for the Fed to finally make good on what was expected. This is particularly important as the use of debit cards continues to increase.
“Debit card routing goes hand-in-hand with the fees that are charged,” Kantor continued. “Routing is key to competition, which is essential to any free market. Online shopping has grown tremendously since routing choice was made law, especially during the pandemic. For routing competition to be meaningful, it must apply no matter where a purchase is made.”
‘Reasonable & Proportional’
The organization noted 2010’s Durbin Amendment directed the Fed to adopt regulations requiring that the swipe fees banks charge merchants to process debit card transactions be “reasonable” and also “proportional” to banks’ costs. The regulations, which took effect in 2011 and apply only to banks with $10 billion or more in assets, allow fees up to 21 cents per transaction plus an extra one 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 rather than Visa and Mastercard setting the fees centrally, but no major banks have done so, the MPC noted.
The MPC pointed to a Fed survey that found banks’ average cost of processing debit transactions was about eight cents as of 2009. The cost has steadily fallen in new surveys conducted every two years since then and stood at 3.9 cents as of 2019, according to the latest survey, which was released last week.
‘Shouldering Greater Portion of Fraud’
“That means the 21-cent figure has doubled from about 2.6 times banks’ cost to 5.4 times the cost,” the MPC said. “Additionally, the Fed survey shows merchants are shouldering a greater portion of fraud, further evidence that the fraud adjustments are outdated and should be removed completely.”
The Fed said it “will continue to review” debit fees and “in light of the most recent data … may propose revisions in the future” but did not make any immediate commitment to lower the fees.
The merchants’ group further said the amount charged to process debit transactions has become more important with growth in debit card use.
“The survey found the dollar value of debit transactions has grown an average 8.1% per year since 2009,” the MPC stated. “Debit swipe fees totaled $24.3 billion in 2019, up from $16.2 billion in 2009. Credit and debit processing fees are most merchants’ second-highest cost after labor and drive up prices paid by the average household by hundreds of dollars a year.”